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Taxes 1040ez

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Taxes 1040ez

Taxes 1040ez 1. Taxes 1040ez   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. Taxes 1040ez Business associate. Taxes 1040ez Bona fide business purpose. Taxes 1040ez Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. Taxes 1040ez This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. Taxes 1040ez It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. Taxes 1040ez Travel expenses defined. Taxes 1040ez   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Taxes 1040ez   An ordinary expense is one that is common and accepted in your trade or business. Taxes 1040ez A necessary expense is one that is helpful and appropriate for your business. Taxes 1040ez An expense does not have to be required to be considered necessary. Taxes 1040ez   You will find examples of deductible travel expenses in Table 1-1 , later. Taxes 1040ez Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Taxes 1040ez This rest requirement is not satisfied by merely napping in your car. Taxes 1040ez You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Taxes 1040ez Example 1. Taxes 1040ez You are a railroad conductor. Taxes 1040ez You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Taxes 1040ez During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Taxes 1040ez You are considered to be away from home. Taxes 1040ez Example 2. Taxes 1040ez You are a truck driver. Taxes 1040ez You leave your terminal and return to it later the same day. Taxes 1040ez You get an hour off at your turnaround point to eat. Taxes 1040ez Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Taxes 1040ez Members of the Armed Forces. Taxes 1040ez   If you are a member of the U. Taxes 1040ez S. Taxes 1040ez Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Taxes 1040ez You cannot deduct your expenses for meals and lodging. Taxes 1040ez You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Taxes 1040ez If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Taxes 1040ez   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. Taxes 1040ez Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Taxes 1040ez Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Taxes 1040ez It includes the entire city or general area in which your business or work is located. Taxes 1040ez If you have more than one regular place of business, your tax home is your main place of business. Taxes 1040ez See Main place of business or work , later. Taxes 1040ez If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Taxes 1040ez See No main place of business or work , later. Taxes 1040ez If you do not have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Taxes 1040ez As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Taxes 1040ez Main place of business or work. Taxes 1040ez   If you have more than one place of work, consider the following when determining which one is your main place of business or work. Taxes 1040ez The total time you ordinarily spend in each place. Taxes 1040ez The level of your business activity in each place. Taxes 1040ez Whether your income from each place is significant or insignificant. Taxes 1040ez Example. Taxes 1040ez You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Taxes 1040ez You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Taxes 1040ez Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Taxes 1040ez No main place of business or work. Taxes 1040ez   You may have a tax home even if you do not have a regular or main place of work. Taxes 1040ez Your tax home may be the home where you regularly live. Taxes 1040ez Factors used to determine tax home. Taxes 1040ez   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Taxes 1040ez You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Taxes 1040ez You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Taxes 1040ez You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Taxes 1040ez   If you satisfy all three factors, your tax home is the home where you regularly live. Taxes 1040ez If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Taxes 1040ez If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Taxes 1040ez Example 1. Taxes 1040ez You are single and live in Boston in an apartment you rent. Taxes 1040ez You have worked for your employer in Boston for a number of years. Taxes 1040ez Your employer enrolls you in a 12-month executive training program. Taxes 1040ez You do not expect to return to work in Boston after you complete your training. Taxes 1040ez During your training, you do not do any work in Boston. Taxes 1040ez Instead, you receive classroom and on-the-job training throughout the United States. Taxes 1040ez You keep your apartment in Boston and return to it frequently. Taxes 1040ez You use your apartment to conduct your personal business. Taxes 1040ez You also keep up your community contacts in Boston. Taxes 1040ez When you complete your training, you are transferred to Los Angeles. Taxes 1040ez You do not satisfy factor (1) because you did not work in Boston. Taxes 1040ez You satisfy factor (2) because you had duplicate living expenses. Taxes 1040ez You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Taxes 1040ez Therefore, you have a tax home in Boston. Taxes 1040ez Example 2. Taxes 1040ez You are an outside salesperson with a sales territory covering several states. Taxes 1040ez Your employer's main office is in Newark, but you do not conduct any business there. Taxes 1040ez Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. Taxes 1040ez You have a room in your married sister's house in Dayton. Taxes 1040ez You stay there for one or two weekends a year, but you do no work in the area. Taxes 1040ez You do not pay your sister for the use of the room. Taxes 1040ez You do not satisfy any of the three factors listed earlier. Taxes 1040ez You are an itinerant and have no tax home. Taxes 1040ez Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Taxes 1040ez You also cannot deduct the cost of meals and lodging while at your tax home. Taxes 1040ez See Example 1 , later. Taxes 1040ez If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Taxes 1040ez See Example 2 , later. Taxes 1040ez Example 1. Taxes 1040ez You are a truck driver and you and your family live in Tucson. Taxes 1040ez You are employed by a trucking firm that has its terminal in Phoenix. Taxes 1040ez At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Taxes 1040ez You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Taxes 1040ez This is because Phoenix is your tax home. Taxes 1040ez Example 2. Taxes 1040ez Your family home is in Pittsburgh, where you work 12 weeks a year. Taxes 1040ez The rest of the year you work for the same employer in Baltimore. Taxes 1040ez In Baltimore, you eat in restaurants and sleep in a rooming house. Taxes 1040ez Your salary is the same whether you are in Pittsburgh or Baltimore. Taxes 1040ez Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Taxes 1040ez You cannot deduct any expenses you have for meals and lodging there. Taxes 1040ez However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Taxes 1040ez You can deduct the cost of your round trip between Baltimore and Pittsburgh. Taxes 1040ez You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Taxes 1040ez Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Taxes 1040ez It may not be practical to return to your tax home from this other location at the end of each work day. Taxes 1040ez Temporary assignment vs. Taxes 1040ez indefinite assignment. Taxes 1040ez   If your assignment or job away from your main place of work is temporary, your tax home does not change. Taxes 1040ez You are considered to be away from home for the whole period you are away from your main place of work. Taxes 1040ez You can deduct your travel expenses if they otherwise qualify for deduction. Taxes 1040ez Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Taxes 1040ez    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Taxes 1040ez An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Taxes 1040ez   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Taxes 1040ez You may be able to deduct the cost of relocating to your new tax home as a moving expense. Taxes 1040ez See Publication 521 for more information. Taxes 1040ez Exception for federal crime investigations or prosecutions. Taxes 1040ez   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Taxes 1040ez This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. Taxes 1040ez   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. Taxes 1040ez Determining temporary or indefinite. Taxes 1040ez   You must determine whether your assignment is temporary or indefinite when you start work. Taxes 1040ez If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Taxes 1040ez An assignment or job that is initially temporary may become indefinite due to changed circumstances. Taxes 1040ez A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Taxes 1040ez   The following examples illustrate whether an assignment or job is temporary or indefinite. Taxes 1040ez Example 1. Taxes 1040ez You are a construction worker. Taxes 1040ez You live and regularly work in Los Angeles. Taxes 1040ez You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Taxes 1040ez Your tax home is Los Angeles. Taxes 1040ez Because of a shortage of work, you took a job on a construction project in Fresno. Taxes 1040ez Your job was scheduled to end in 8 months. Taxes 1040ez The job actually lasted 10 months. Taxes 1040ez You realistically expected the job in Fresno to last 8 months. Taxes 1040ez The job actually did last less than 1 year. Taxes 1040ez The job is temporary and your tax home is still in Los Angeles. Taxes 1040ez Example 2. Taxes 1040ez The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. Taxes 1040ez The job actually was completed in 10 months. Taxes 1040ez Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. Taxes 1040ez You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. Taxes 1040ez Example 3. Taxes 1040ez The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. Taxes 1040ez After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). Taxes 1040ez Initially, you realistically expected the job in Fresno to last for only 9 months. Taxes 1040ez However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. Taxes 1040ez You can only deduct your travel expenses for the first 8 months. Taxes 1040ez You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. Taxes 1040ez Going home on days off. Taxes 1040ez   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Taxes 1040ez You cannot deduct the cost of your meals and lodging there. Taxes 1040ez However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Taxes 1040ez You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Taxes 1040ez   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Taxes 1040ez In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Taxes 1040ez Probationary work period. Taxes 1040ez   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Taxes 1040ez You cannot deduct any of your expenses for meals and lodging during the probationary period. Taxes 1040ez What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Taxes 1040ez You can deduct ordinary and necessary expenses you have when you travel away from home on business. Taxes 1040ez The type of expense you can deduct depends on the facts and your circumstances. Taxes 1040ez Table 1-1 summarizes travel expenses you may be able to deduct. Taxes 1040ez You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Taxes 1040ez When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Taxes 1040ez You can use a log, diary, notebook, or any other written record to keep track of your expenses. Taxes 1040ez The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). Taxes 1040ez Separating costs. Taxes 1040ez   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Taxes 1040ez You must have a reasonable basis for making this allocation. Taxes 1040ez For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Taxes 1040ez Travel expenses for another individual. Taxes 1040ez    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Taxes 1040ez Employee. Taxes 1040ez   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Taxes 1040ez Business associate. Taxes 1040ez   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. Taxes 1040ez A business associate is someone with whom you could reasonably expect to actively conduct business. Taxes 1040ez A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Taxes 1040ez Bona fide business purpose. Taxes 1040ez   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Taxes 1040ez Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Taxes 1040ez Table 1-1. Taxes 1040ez Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. Taxes 1040ez IF you have expenses for. Taxes 1040ez . Taxes 1040ez . Taxes 1040ez THEN you can deduct the cost of. Taxes 1040ez . Taxes 1040ez . Taxes 1040ez transportation travel by airplane, train, bus, or car between your home and your business destination. Taxes 1040ez If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Taxes 1040ez If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. Taxes 1040ez taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Taxes 1040ez baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Taxes 1040ez car operating and maintaining your car when traveling away from home on business. Taxes 1040ez You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. Taxes 1040ez If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Taxes 1040ez lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Taxes 1040ez Meals include amounts spent for food, beverages, taxes, and related tips. Taxes 1040ez See Meals for additional rules and limits. Taxes 1040ez cleaning dry cleaning and laundry. Taxes 1040ez telephone business calls while on your business trip. Taxes 1040ez This includes business communication by fax machine or other communication devices. Taxes 1040ez tips tips you pay for any expenses in this chart. Taxes 1040ez other other similar ordinary and necessary expenses related to your business travel. Taxes 1040ez These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Taxes 1040ez Example. Taxes 1040ez Jerry drives to Chicago on business and takes his wife, Linda, with him. Taxes 1040ez Linda is not Jerry's employee. Taxes 1040ez Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Taxes 1040ez The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Taxes 1040ez Her expenses are not deductible. Taxes 1040ez Jerry pays $199 a day for a double room. Taxes 1040ez A single room costs $149 a day. Taxes 1040ez He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Taxes 1040ez If he uses public transportation, he can deduct only his fare. Taxes 1040ez Meals You can deduct the cost of meals in either of the following situations. Taxes 1040ez It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Taxes 1040ez The meal is business-related entertainment. Taxes 1040ez Business-related entertainment is discussed in chapter 2 . Taxes 1040ez The following discussion deals only with meals that are not business-related entertainment. Taxes 1040ez Lavish or extravagant. Taxes 1040ez   You cannot deduct expenses for meals that are lavish or extravagant. Taxes 1040ez An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Taxes 1040ez Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Taxes 1040ez 50% limit on meals. Taxes 1040ez   You can figure your meals expense using either of the following methods. Taxes 1040ez Actual cost. Taxes 1040ez The standard meal allowance. Taxes 1040ez Both of these methods are explained below. Taxes 1040ez But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Taxes 1040ez   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Taxes 1040ez If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Taxes 1040ez Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. Taxes 1040ez Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Taxes 1040ez If you use this method, you must keep records of your actual cost. Taxes 1040ez Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Taxes 1040ez It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Taxes 1040ez The set amount varies depending on where and when you travel. Taxes 1040ez In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Taxes 1040ez If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Taxes 1040ez See the recordkeeping rules for travel in chapter 5 . Taxes 1040ez Incidental expenses. Taxes 1040ez   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Taxes 1040ez   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Taxes 1040ez Incidental-expenses-only method. Taxes 1040ez   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Taxes 1040ez The amount of the deduction is $5 a day. Taxes 1040ez You can use this method only if you did not pay or incur any meal expenses. Taxes 1040ez You cannot use this method on any day that you use the standard meal allowance. Taxes 1040ez This method is subject to the proration rules for partial days. Taxes 1040ez See Travel for days you depart and return , later in this chapter. Taxes 1040ez Note. Taxes 1040ez The incidental-expenses-only method is not subject to the 50% limit discussed below. Taxes 1040ez Federal employees should refer to the Federal Travel Regulations at www. Taxes 1040ez gsa. Taxes 1040ez gov. Taxes 1040ez Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Taxes 1040ez 50% limit may apply. Taxes 1040ez   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Taxes 1040ez If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Taxes 1040ez The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. Taxes 1040ez There is no optional standard lodging amount similar to the standard meal allowance. Taxes 1040ez Your allowable lodging expense deduction is your actual cost. Taxes 1040ez Who can use the standard meal allowance. Taxes 1040ez   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Taxes 1040ez Use of the standard meal allowance for other travel. Taxes 1040ez   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Taxes 1040ez You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Taxes 1040ez You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Taxes 1040ez Amount of standard meal allowance. Taxes 1040ez   The standard meal allowance is the federal M&IE rate. Taxes 1040ez For travel in 2013, the rate for most small localities in the United States is $46 a day. Taxes 1040ez    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Taxes 1040ez    You can find this information (organized by state) on the Internet at www. Taxes 1040ez gsa. Taxes 1040ez gov/perdiem. Taxes 1040ez Enter a zip code or select a city and state for the per diem rates for the current fiscal year. Taxes 1040ez Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. Taxes 1040ez ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. Taxes 1040ez You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. Taxes 1040ez   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Taxes 1040ez If you work in the transportation industry, however, see Special rate for transportation workers , later. Taxes 1040ez Standard meal allowance for areas outside the continental United States. Taxes 1040ez   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Taxes 1040ez The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Taxes 1040ez S. Taxes 1040ez Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Taxes 1040ez The Department of State establishes per diem rates for all other foreign areas. Taxes 1040ez    You can access per diem rates for non-foreign areas outside the continental United States at: www. Taxes 1040ez defensetravel. Taxes 1040ez dod. Taxes 1040ez mil/site/perdiemCalc. Taxes 1040ez cfm. Taxes 1040ez You can access all other foreign per diem rates at: www. Taxes 1040ez state. Taxes 1040ez gov/travel/. Taxes 1040ez Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. Taxes 1040ez Special rate for transportation workers. Taxes 1040ez   You can use a special standard meal allowance if you work in the transportation industry. Taxes 1040ez You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Taxes 1040ez If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). Taxes 1040ez   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Taxes 1040ez If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Taxes 1040ez Travel for days you depart and return. Taxes 1040ez   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Taxes 1040ez You can do so by one of two methods. Taxes 1040ez Method 1: You can claim 3/4 of the standard meal allowance. Taxes 1040ez Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Taxes 1040ez Example. Taxes 1040ez Jen is employed in New Orleans as a convention planner. Taxes 1040ez In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Taxes 1040ez She left her home in New Orleans at 10 a. Taxes 1040ez m. Taxes 1040ez on Wednesday and arrived in Washington, DC, at 5:30 p. Taxes 1040ez m. Taxes 1040ez After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Taxes 1040ez m. Taxes 1040ez Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Taxes 1040ez Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Taxes 1040ez Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Taxes 1040ez For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Taxes 1040ez Travel in the United States The following discussion applies to travel in the United States. Taxes 1040ez For this purpose, the United States includes the 50 states and the District of Columbia. Taxes 1040ez The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Taxes 1040ez See Part of Trip Outside the United States , later. Taxes 1040ez Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. Taxes 1040ez If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. Taxes 1040ez These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Taxes 1040ez Example. Taxes 1040ez You work in Atlanta and take a business trip to New Orleans in May. Taxes 1040ez Your business travel totals 850 miles round trip. Taxes 1040ez On your way, you stop in Mobile to visit your parents. Taxes 1040ez You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Taxes 1040ez If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. Taxes 1040ez You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. Taxes 1040ez The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Taxes 1040ez Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Taxes 1040ez However, you can deduct any expenses you have while at your destination that are directly related to your business. Taxes 1040ez A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Taxes 1040ez The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Taxes 1040ez Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. Taxes 1040ez For the part of your trip that is inside the United States, use the rules for travel in the United States. Taxes 1040ez Travel outside the United States does not include travel from one point in the United States to another point in the United States. Taxes 1040ez The following discussion can help you determine whether your trip was entirely within the United States. Taxes 1040ez Public transportation. Taxes 1040ez   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Taxes 1040ez Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Taxes 1040ez Example. Taxes 1040ez You fly from New York to Puerto Rico with a scheduled stop in Miami. Taxes 1040ez You return to New York nonstop. Taxes 1040ez The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Taxes 1040ez Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Taxes 1040ez Private car. Taxes 1040ez   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. Taxes 1040ez Example. Taxes 1040ez You travel by car from Denver to Mexico City and return. Taxes 1040ez Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Taxes 1040ez The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Taxes 1040ez Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Taxes 1040ez For this purpose, the United States includes the 50 states and the District of Columbia. Taxes 1040ez How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Taxes 1040ez Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Taxes 1040ez Travel entirely for business. Taxes 1040ez   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Taxes 1040ez Travel considered entirely for business. Taxes 1040ez   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Taxes 1040ez Exception 1 - No substantial control. Taxes 1040ez   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Taxes 1040ez The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Taxes 1040ez   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. Taxes 1040ez    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . Taxes 1040ez   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Taxes 1040ez   A self-employed person generally has substantial control over arranging business trips. Taxes 1040ez Exception 2 - Outside United States no more than a week. Taxes 1040ez   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Taxes 1040ez One week means 7 consecutive days. Taxes 1040ez In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Taxes 1040ez Example. Taxes 1040ez You traveled to Brussels primarily for business. Taxes 1040ez You left Denver on Tuesday and flew to New York. Taxes 1040ez On Wednesday, you flew from New York to Brussels, arriving the next morning. Taxes 1040ez On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. Taxes 1040ez You flew back to New York, arriving Wednesday afternoon. Taxes 1040ez On Thursday, you flew back to Denver. Taxes 1040ez Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. Taxes 1040ez This is because the day you depart does not count as a day outside the United States. Taxes 1040ez You can deduct your cost of the round-trip flight between Denver and Brussels. Taxes 1040ez You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. Taxes 1040ez However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. Taxes 1040ez Exception 3 - Less than 25% of time on personal activities. Taxes 1040ez   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Taxes 1040ez For this purpose, count both the day your trip began and the day it ended. Taxes 1040ez Example. Taxes 1040ez You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. Taxes 1040ez You then flew back to Seattle. Taxes 1040ez You spent 1 day flying in each direction. Taxes 1040ez Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. Taxes 1040ez The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. Taxes 1040ez Exception 4 - Vacation not a major consideration. Taxes 1040ez   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Taxes 1040ez Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. Taxes 1040ez You can only deduct the business portion of your cost of getting to and from your destination. Taxes 1040ez You must allocate the costs between your business and other activities to determine your deductible amount. Taxes 1040ez See Travel allocation rules , later. Taxes 1040ez You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . Taxes 1040ez In those cases, you can deduct the total cost of getting to and from your destination. Taxes 1040ez Travel allocation rules. Taxes 1040ez   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. Taxes 1040ez The days you depart from and return to the United States are both counted as days outside the United States. Taxes 1040ez   To figure the deductible amount of your round-trip travel expenses, use the following fraction. Taxes 1040ez The numerator (top number) is the total number of business days outside the United States. Taxes 1040ez The denominator (bottom number) is the total number of business and nonbusiness days of travel. Taxes 1040ez Counting business days. Taxes 1040ez   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. Taxes 1040ez Transportation day. Taxes 1040ez   Count as a business day any day you spend traveling to or from a business destination. Taxes 1040ez However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Taxes 1040ez Extra days for side trips or nonbusiness activities cannot be counted as business days. Taxes 1040ez Presence required. Taxes 1040ez   Count as a business day any day your presence is required at a particular place for a specific business purpose. Taxes 1040ez Count it as a business day even if you spend most of the day on nonbusiness activities. Taxes 1040ez Day spent on business. Taxes 1040ez   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Taxes 1040ez Also, count as a business day any day you are prevented from working because of circumstances beyond your control. Taxes 1040ez Certain weekends and holidays. Taxes 1040ez   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. Taxes 1040ez But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. Taxes 1040ez Example 1. Taxes 1040ez Your tax home is New York City. Taxes 1040ez You travel to Quebec, where you have a business appointment on Friday. Taxes 1040ez You have another appointment on the following Monday. Taxes 1040ez Because your presence was required on both Friday and Monday, they are business days. Taxes 1040ez Because the weekend is between business days, Saturday and Sunday are counted as business days. Taxes 1040ez This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. Taxes 1040ez Example 2. Taxes 1040ez If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. Taxes 1040ez Nonbusiness activity on the way to or from your business destination. Taxes 1040ez   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Taxes 1040ez   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. Taxes 1040ez   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Taxes 1040ez The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Taxes 1040ez Example. Taxes 1040ez You live in New York. Taxes 1040ez On May 4 you flew to Paris to attend a business conference that began on May 5. Taxes 1040ez The conference ended at noon on May 14. Taxes 1040ez That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. Taxes 1040ez The primary purpose for the trip was to attend the conference. Taxes 1040ez If you had not stopped in Dublin, you would have arrived home the evening of May 14. Taxes 1040ez You do not meet any of the exceptions that would allow you to consider your travel entirely for business. Taxes 1040ez May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. Taxes 1040ez You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. Taxes 1040ez You cannot deduct your expenses while in Dublin. Taxes 1040ez You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. Taxes 1040ez You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Taxes 1040ez Round-trip airfare from New York to Dublin would have been $1,250. Taxes 1040ez You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). Taxes 1040ez Your deductible air travel expense is $1,364 ($1,850 − $486). Taxes 1040ez Nonbusiness activity at, near, or beyond business destination. Taxes 1040ez   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Taxes 1040ez   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. Taxes 1040ez   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Taxes 1040ez The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Taxes 1040ez   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. Taxes 1040ez Example. Taxes 1040ez Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. Taxes 1040ez You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. Taxes 1040ez In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. Taxes 1040ez You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. Taxes 1040ez (Assume these expenses total $4,939. Taxes 1040ez ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. Taxes 1040ez Other methods. Taxes 1040ez   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. Taxes 1040ez Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Taxes 1040ez However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Taxes 1040ez Example. Taxes 1040ez The university from which you graduated has a continuing education program for members of its alumni association. Taxes 1040ez This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. Taxes 1040ez However, none of the conferences are directed toward specific occupations or professions. Taxes 1040ez It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. Taxes 1040ez Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. Taxes 1040ez These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. Taxes 1040ez Professional conference directors schedule and conduct the sessions. Taxes 1040ez Participants can choose those sessions they wish to attend. Taxes 1040ez You can participate in this program since you are a member of the alumni association. Taxes 1040ez You and your family take one of the trips. Taxes 1040ez You spend about 2 hours at each of the planned sessions. Taxes 1040ez The rest of the time you go touring and sightseeing with your family. Taxes 1040ez The trip lasts less than 1 week. Taxes 1040ez Your travel expenses for the trip are not deductible since the trip was primarily a vacation. Taxes 1040ez However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. Taxes 1040ez These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. Taxes 1040ez Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. Taxes 1040ez The limit is twice the highest federal per diem rate allowable at the time of your travel. Taxes 1040ez (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. Taxes 1040ez ) Daily limit on luxury water travel. Taxes 1040ez   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. Taxes 1040ez   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. Taxes 1040ez 1 – Mar. Taxes 1040ez 31 $367 $734   Apr. Taxes 1040ez 1 – June 30 312 624   July 1 – Aug. Taxes 1040ez 31 310 620   Sept. Taxes 1040ez 1 – Sept. Taxes 1040ez 30 366 732   Oct. Taxes 1040ez 1 – Dec. Taxes 1040ez 31 374 748 Example. Taxes 1040ez Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. Taxes 1040ez Her expense for the 6-day cruise was $5,200. Taxes 1040ez Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). Taxes 1040ez Meals and entertainment. Taxes 1040ez   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. Taxes 1040ez For a discussion of the 50% Limit , see chapter 2. Taxes 1040ez Example. Taxes 1040ez In the previous example, Caroline's luxury water travel had a total cost of $5,200. Taxes 1040ez Of that amount, $3,700 was separately stated as meals and entertainment. Taxes 1040ez Caroline, who is self-employed, is not reimbursed for any of her travel expenses. Taxes 1040ez Caroline figures her deductible travel expenses as follows. Taxes 1040ez Meals and entertainment $3,700   50% limit × . Taxes 1040ez 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. Taxes 1040ez Not separately stated. Taxes 1040ez   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. Taxes 1040ez Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. Taxes 1040ez See Cruise Ships under Conventions. Taxes 1040ez Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Taxes 1040ez You cannot deduct the travel expenses for your family. Taxes 1040ez If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Taxes 1040ez Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Taxes 1040ez You can deduct your travel expenses only if your attendance is connected to your own trade or business. Taxes 1040ez Convention agenda. Taxes 1040ez   The convention agenda or program generally shows the purpose of the convention. Taxes 1040ez You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Taxes 1040ez The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Taxes 1040ez Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. Taxes 1040ez See Reasonableness test , later. Taxes 1040ez If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . Taxes 1040ez North American area. Taxes 1040ez   The North American area includes the following locations. Taxes 1040ez American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. Taxes 1040ez S. Taxes 1040ez Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. Taxes 1040ez S. Taxes 1040ez islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. Taxes 1040ez Reasonableness test. Taxes 1040ez   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. Taxes 1040ez The purpose of the meeting and the activities taking place at the meeting. Taxes 1040ez The purposes and activities of the sponsoring organizations or groups. Taxes 1040ez The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. Taxes 1040ez Other relevant factors you may present. Taxes 1040ez Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. Taxes 1040ez All ships that sail are considered cruise ships. Taxes 1040ez You can deduct these expenses only if all of the following requirements are met. Taxes 1040ez The convention, seminar, or meeting is directly related to your trade or business. Taxes 1040ez The cruise ship is a vessel registered in the United States. Taxes 1040ez All of the cruise ship's ports of call are in the United States or in possessions of the United States. Taxes 1040ez You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. Taxes 1040ez You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. Taxes 1040ez Prev  Up  Next   Home   More Online Publications
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Extra Time Granted for Tax-Exempt Bond Issuers Affected by Severe Storms and Tornados in Oklahoma

Government entity issuers of tax-exempt bonds affected by the severe storms and tornados occurring in parts of Oklahoma may qualify for additional time to file certain returns related to tax-exempt bonds, qualified tax credit bonds, and specified tax credit bonds.

Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, affected government entities in covered disaster areas in Oklahoma will receive filing and payment relief. 

Affected issuers who are required to file a Form 8038 series information return or a Form 8038-T in connection with an arbitrage payment, with a due date between May 18, 2013 and Sept. 29, 2013, may file such returns and make such payments on or before Sept. 30, 2013.

Affected issuers may also file such returns and make such payments on or before Sept. 30, 2013, if the records necessary to make such filing or payment, the conduit borrower, the bond counsel, or other professional upon whom the issuer relies to make such filing or payment are located in a covered disaster area.

The IRS will abate any late-filing penalty that would otherwise apply. The IRS automatically provides this relief to affected issuers located in covered disaster areas. Issuers need not contact the IRS to get this relief.  However, affected issuers should clearly indicate on the top of the return that such late filing or payment is the result of devastation caused by the severe storms and tornados in Oklahoma.

In addition, an affected issuer required to file a Form 8038 series information return or a Form 8038-T in connection with an arbitrage payment, due between May 18, 2013 and Sept. 29, 2013, may request authority to file a Form 8038 or Form 8038-T after Sept. 30, 2013, by requesting an extension under Revenue Procedures 2002-48 and 2005-40, which provide guidance on how issuers may request extensions of time to file Form 8038 series information returns and waivers of penalty associated with a late arbitrage payment.  Affected issuers should request relief in accordance with these revenue procedures and clearly indicate that such late filing or payment was the result of devastation caused by the severe storms and tornados in Oklahoma.

In addition, a Form 8038-CP authorized to be filed by an affected issuer between May 18, 2013 and Sept. 29, 2013, but filed thereafter, will be immediately processed upon receipt.

At this time, IRS relief for affected issuers applies to the following covered disaster areas in Oklahoma: Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties.

Related Items:

IRS Gives Tax Relief to Oklahoma Tornado Victims; Return Filing and Tax Payment Deadlines Extended to Sept 30

Tax Relief for Victims of Severe Storms and Tornadoes in Oklahoma

Revenue Procedure 2007-56

Page Last Reviewed or Updated: 04-Sep-2013

The Taxes 1040ez

Taxes 1040ez 3. Taxes 1040ez   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. Taxes 1040ez Form 4797. Taxes 1040ez Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. Taxes 1040ez Granting the right to remove deposits. Taxes 1040ez Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. Taxes 1040ez You must report the income from all the different sources on your tax return, unless it is excluded by law. Taxes 1040ez Where you report the income on your tax return depends on its source. Taxes 1040ez This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Taxes 1040ez For information on where to report other income, see the Instructions for Form 1040, U. Taxes 1040ez S. Taxes 1040ez Individual Income Tax Return. Taxes 1040ez Accounting method. Taxes 1040ez   The rules discussed in this chapter assume you use the cash method of accounting. Taxes 1040ez Under the cash method, you generally include an item of income in gross income in the year you receive it. Taxes 1040ez See Cash Method in chapter 2. Taxes 1040ez   If you use an accrual method of accounting, different rules may apply to your situation. Taxes 1040ez See Accrual Method in chapter 2. Taxes 1040ez Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. Taxes 1040ez Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Taxes 1040ez Use this schedule to figure the net profit or loss from regular farming operations. Taxes 1040ez Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Taxes 1040ez This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. Taxes 1040ez It also includes income from the sale of crop shares if you materially participate in producing the crop. Taxes 1040ez See Rents (Including Crop Shares) , later. Taxes 1040ez Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Taxes 1040ez Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Taxes 1040ez Land. Taxes 1040ez Depreciable farm equipment. Taxes 1040ez Buildings and structures. Taxes 1040ez Livestock held for draft, breeding, sport, or dairy purposes. Taxes 1040ez Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Taxes 1040ez Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Taxes 1040ez Sales of Farm Products Where to report. Taxes 1040ez    Table 3-1 shows where to report the sale of farm products on your tax return. Taxes 1040ez Schedule F. Taxes 1040ez   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. Taxes 1040ez This includes money and the fair market value of any property or services you receive. Taxes 1040ez When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). Taxes 1040ez See chapter 6 for information on the basis of assets. Taxes 1040ez You generally report these amounts on Schedule F for the year you receive payment. Taxes 1040ez Example. Taxes 1040ez In 2012, you bought 20 feeder calves for $11,000 for resale. Taxes 1040ez You sold them in 2013 for $21,000. Taxes 1040ez You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. Taxes 1040ez Form 4797. Taxes 1040ez   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. Taxes 1040ez In either case, you should always report these sales on Form 4797 instead of Schedule F. Taxes 1040ez See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Taxes 1040ez Animals you do not hold primarily for sale are considered business assets of your farm. Taxes 1040ez Table 3-1. Taxes 1040ez Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. Taxes 1040ez   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. Taxes 1040ez This applies even if your agent pays you in a later year. Taxes 1040ez For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Taxes 1040ez Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. Taxes 1040ez You must meet all the following conditions to qualify. Taxes 1040ez Your principal trade or business is farming. Taxes 1040ez You use the cash method of accounting. Taxes 1040ez You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. Taxes 1040ez The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Taxes 1040ez Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. Taxes 1040ez The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. Taxes 1040ez A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Taxes 1040ez See Other Involuntary Conversions in chapter 11. Taxes 1040ez Usual business practice. Taxes 1040ez   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Taxes 1040ez Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. Taxes 1040ez If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. Taxes 1040ez Connection with affected area. Taxes 1040ez   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. Taxes 1040ez However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Taxes 1040ez This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. Taxes 1040ez Classes of livestock. Taxes 1040ez   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Taxes 1040ez Do not separate animals into classes based on age, sex, or breed. Taxes 1040ez Amount to be postponed. Taxes 1040ez   Follow these steps to figure the amount of gain to be postponed for each class of animals. Taxes 1040ez Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. Taxes 1040ez For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Taxes 1040ez Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Taxes 1040ez Example. Taxes 1040ez You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Taxes 1040ez As a result of drought, you sold 135 head during 2012. Taxes 1040ez You realized $70,200 from the sale. Taxes 1040ez On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Taxes 1040ez The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Taxes 1040ez How to postpone gain. Taxes 1040ez   To postpone gain, attach a statement to your tax return for the year of the sale. Taxes 1040ez The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. Taxes 1040ez A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Taxes 1040ez Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. Taxes 1040ez A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Taxes 1040ez The number of animals sold in each of the 3 preceding years. Taxes 1040ez The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. Taxes 1040ez The total number of animals sold and the number sold because of weather-related conditions during the tax year. Taxes 1040ez A computation, as described above, of the income to be postponed for each class of livestock. Taxes 1040ez   Generally, you must file the statement and the return by the due date of the return, including extensions. Taxes 1040ez However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. Taxes 1040ez For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxes 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Taxes 1040ez 9100-2” at the top of the amended return. Taxes 1040ez File the amended return at the same address you filed the original return. Taxes 1040ez Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Taxes 1040ez Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Taxes 1040ez However, if you materially participate in farming operations on the land, the rent is farm income. Taxes 1040ez See Landlord Participation in Farming in chapter 12. Taxes 1040ez Pasture income and rental. Taxes 1040ez   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Taxes 1040ez You must enter it as Other income on Schedule F. Taxes 1040ez If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Taxes 1040ez Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. Taxes 1040ez It does not matter whether you use the cash method of accounting or an accrual method of accounting. Taxes 1040ez If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. Taxes 1040ez See Landlord Participation in Farming in chapter 12. Taxes 1040ez Report the rental income on Schedule F. Taxes 1040ez If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). Taxes 1040ez The income is not included in self-employment income. Taxes 1040ez Crop shares you use to feed livestock. Taxes 1040ez   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Taxes 1040ez You must include the fair market value of the crop shares in income at that time. Taxes 1040ez You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Taxes 1040ez Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. Taxes 1040ez See  chapter 12. Taxes 1040ez Crop shares you give to others (gift). Taxes 1040ez   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Taxes 1040ez You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Taxes 1040ez Example. Taxes 1040ez A tenant farmed part of your land under a crop-share arrangement. Taxes 1040ez The tenant harvested and delivered the crop in your name to an elevator company. Taxes 1040ez Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. Taxes 1040ez They sell their crop shares in the following year and the elevator company makes payments directly to your children. Taxes 1040ez In this situation, you are considered to have received rental income and then made a gift of that income. Taxes 1040ez You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. Taxes 1040ez Crop share loss. Taxes 1040ez   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. Taxes 1040ez See Publication 925 for information on these rules. Taxes 1040ez Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. Taxes 1040ez However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Taxes 1040ez See Cost-Sharing Exclusion (Improvements) , later. Taxes 1040ez Report the agricultural program payment on the appropriate line of Schedule F, Part I. Taxes 1040ez Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. Taxes 1040ez However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Taxes 1040ez Claim the deduction on Schedule F for the year of repayment or reduction. Taxes 1040ez Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Taxes 1040ez However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. Taxes 1040ez You do not need approval from the IRS to adopt this method of reporting CCC loans. Taxes 1040ez Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. Taxes 1040ez However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Taxes 1040ez For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Taxes 1040ez Revenue Procedure 2008-52, 2008-36 I. Taxes 1040ez R. Taxes 1040ez B. Taxes 1040ez 587, is available at  www. Taxes 1040ez irs. Taxes 1040ez gov/irb/2008-36_IRB/ar09. Taxes 1040ez html. Taxes 1040ez You can request income tax withholding from CCC loan payments you receive. Taxes 1040ez Use Form W-4V, Voluntary Withholding Request. Taxes 1040ez See chapter 16 for information about ordering the form. Taxes 1040ez To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. Taxes 1040ez Attach a statement to your return showing the details of the loan. Taxes 1040ez You must file the statement and the return by the due date of the return, including extensions. Taxes 1040ez 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). Taxes 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Taxes 1040ez 9100-2” at the top of the return. Taxes 1040ez File the amended return at the same address you filed the original return. Taxes 1040ez When you make this election, the amount you report as income becomes your basis in the commodity. Taxes 1040ez See chapter 6 for information on the basis of assets. Taxes 1040ez If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. Taxes 1040ez If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Taxes 1040ez If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. Taxes 1040ez If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. Taxes 1040ez Form 1099-A. Taxes 1040ez   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. Taxes 1040ez “CCC” should be shown in box 6. Taxes 1040ez The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Taxes 1040ez Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. Taxes 1040ez If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Taxes 1040ez Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. Taxes 1040ez Market gain should be reported as follows. Taxes 1040ez If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. Taxes 1040ez However, adjust the basis of the commodity for the amount of the market gain. Taxes 1040ez If you did not include the CCC loan in income in the year received, include the market gain in your income. Taxes 1040ez The following examples show how to report market gain. Taxes 1040ez Example 1. Taxes 1040ez Mike Green is a cotton farmer. Taxes 1040ez He uses the cash method of accounting and files his tax return on a calendar year basis. Taxes 1040ez He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Taxes 1040ez In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Taxes 1040ez 00 per pound). Taxes 1040ez In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Taxes 1040ez 50 per pound (lower than the loan amount). Taxes 1040ez Later in 2013, he sold the cotton for $2,500. Taxes 1040ez The market gain on the redemption was $. Taxes 1040ez 50 ($2. Taxes 1040ez 00 – $1. Taxes 1040ez 50) per pound. Taxes 1040ez Mike realized total market gain of $500 ($. Taxes 1040ez 50 x 1,000 pounds). Taxes 1040ez How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. Taxes 1040ez Included CCC loan. Taxes 1040ez   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. Taxes 1040ez The $500 market gain is not recognized on the redemption. Taxes 1040ez He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxes 1040ez   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Taxes 1040ez His gain from the sale is $1,000 ($2,500 – $1,500). Taxes 1040ez He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Taxes 1040ez Excluded CCC loan. Taxes 1040ez   Mike has income of $500 from market gain in 2013. Taxes 1040ez He reports it on Schedule F, lines 4a and 4b. Taxes 1040ez His basis in the cotton is zero, so his gain from its sale is $2,500. Taxes 1040ez He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Taxes 1040ez Example 2. Taxes 1040ez The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. Taxes 1040ez Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Taxes 1040ez In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Taxes 1040ez How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. Taxes 1040ez Included CCC loan. Taxes 1040ez   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. Taxes 1040ez The $500 market gain is not recognized on the redemption. Taxes 1040ez Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxes 1040ez   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Taxes 1040ez Mike has no gain or loss on its sale to the cotton buyer for that amount. Taxes 1040ez Excluded CCC loan. Taxes 1040ez   As in Example 1, Mike has income of $500 from market gain in 2013. Taxes 1040ez He reports it on Schedule F, lines 4a and 4b. Taxes 1040ez His basis in the cotton is zero, so his gain from its sale is $1,500. Taxes 1040ez He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Taxes 1040ez Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. Taxes 1040ez You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. Taxes 1040ez Cost-share payments you receive may qualify for the cost-sharing exclusion. Taxes 1040ez See Cost-Sharing Exclusion (Improvements) , later. Taxes 1040ez CRP payments are reported to you on Form 1099-G. Taxes 1040ez Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Taxes 1040ez See the instructions for Schedule SE (Form 1040). Taxes 1040ez Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. Taxes 1040ez You generally include them in the year you receive them. Taxes 1040ez Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. Taxes 1040ez You can request income tax withholding from crop disaster payments you receive from the federal government. Taxes 1040ez Use Form W-4V, Voluntary Withholding Request. Taxes 1040ez See chapter 16 for information about ordering the form. Taxes 1040ez Election to postpone reporting until the following year. Taxes 1040ez   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. Taxes 1040ez You use the cash method of accounting. Taxes 1040ez You receive the crop insurance proceeds in the same tax year the crops are damaged. Taxes 1040ez You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Taxes 1040ez   Deferral is not permitted for proceeds received from revenue insurance policies. Taxes 1040ez   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. Taxes 1040ez Check the box on line 8c and attach a statement to your tax return. Taxes 1040ez The statement must include your name and address and contain the following information. Taxes 1040ez A statement that you are making an election under IRC section 451(d) and Regulations section 1. Taxes 1040ez 451-6. Taxes 1040ez The specific crop or crops physically destroyed or damaged. Taxes 1040ez A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. Taxes 1040ez The cause of the physical destruction or damage and the date or dates it occurred. Taxes 1040ez The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Taxes 1040ez The name of each insurance carrier from whom you received payments. Taxes 1040ez   One election covers all crops representing a single trade or business. Taxes 1040ez If you have more than one farming business, make a separate election for each one. Taxes 1040ez For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. Taxes 1040ez   An election is binding for the year unless the IRS approves your request to change it. Taxes 1040ez To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. Taxes 1040ez Ogden Submission Processing Center P. Taxes 1040ez O. Taxes 1040ez Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. Taxes 1040ez These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Taxes 1040ez They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Taxes 1040ez Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. Taxes 1040ez You must include these benefits in income in the year you receive them. Taxes 1040ez You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Taxes 1040ez Report the benefits on Schedule F, Part I, as agricultural program payments. Taxes 1040ez You can usually take a current deduction for the same amount as a feed expense. Taxes 1040ez Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. Taxes 1040ez A payment is any economic benefit you get as a result of an improvement. Taxes 1040ez However, this exclusion applies only to that part of a payment that meets all three of the following tests. Taxes 1040ez It was for a capital expense. Taxes 1040ez You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Taxes 1040ez You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Taxes 1040ez See chapter 5 for information on deducting soil and water conservation expenses. Taxes 1040ez It does not substantially increase your annual income from the property for which it is made. Taxes 1040ez An increase in annual income is substantial if it is more than the greater of the following amounts. Taxes 1040ez 10% of the average annual income derived from the affected property before receiving the improvement. Taxes 1040ez $2. Taxes 1040ez 50 times the number of affected acres. Taxes 1040ez The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxes 1040ez Qualifying programs. Taxes 1040ez   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Taxes 1040ez The rural clean water program authorized by the Federal Water Pollution Control Act. Taxes 1040ez The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Taxes 1040ez The water bank program authorized by the Water Bank Act. Taxes 1040ez The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Taxes 1040ez The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Taxes 1040ez The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Taxes 1040ez The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Taxes 1040ez Certain small watershed programs, listed later. Taxes 1040ez Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxes 1040ez Several state programs have been approved. Taxes 1040ez For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). Taxes 1040ez Small watershed programs. Taxes 1040ez   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. Taxes 1040ez The programs under the Watershed Protection and Flood Prevention Act. Taxes 1040ez The flood prevention projects under the Flood Control Act of 1944. Taxes 1040ez The Emergency Watershed Protection Program under the Flood Control Act of 1950. Taxes 1040ez Certain programs under the Colorado River Basin Salinity Control Act. Taxes 1040ez The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. Taxes 1040ez The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxes 1040ez The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxes 1040ez The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxes 1040ez The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxes 1040ez The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Taxes 1040ez The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Taxes 1040ez The Conservation Security Program authorized by the Food Security Act of 1985. Taxes 1040ez The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Taxes 1040ez Income realized. Taxes 1040ez   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). Taxes 1040ez Value of the improvement. Taxes 1040ez   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Taxes 1040ez The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. Taxes 1040ez Any government payments under a program not listed earlier. Taxes 1040ez Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Taxes 1040ez Any government payment to you for rent or for your services. Taxes 1040ez The denominator of the fraction is the total cost of the improvement. Taxes 1040ez Excludable portion. Taxes 1040ez   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. Taxes 1040ez 10% of the prior average annual income from the affected acreage. Taxes 1040ez The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Taxes 1040ez $2. Taxes 1040ez 50 times the number of affected acres. Taxes 1040ez The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Taxes 1040ez You may need to consult your tax advisor for assistance. Taxes 1040ez Example. Taxes 1040ez One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. Taxes 1040ez The total cost of the improvement was $500,000. Taxes 1040ez The USDA paid $490,000. Taxes 1040ez You paid $10,000. Taxes 1040ez The value of the cost-sharing improvement is $15,000. Taxes 1040ez The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. Taxes 1040ez The excludable portion is the greater amount, $1,550. Taxes 1040ez You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. Taxes 1040ez   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Taxes 1040ez Any payment excluded from income is not part of your basis. Taxes 1040ez In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Taxes 1040ez   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. Taxes 1040ez How to report the exclusion. Taxes 1040ez   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Taxes 1040ez The statement must include the following information. Taxes 1040ez The dollar amount of the cost funded by the government payment. Taxes 1040ez The value of the improvement. Taxes 1040ez The amount you are excluding. Taxes 1040ez   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Taxes 1040ez Recapture. Taxes 1040ez   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. Taxes 1040ez In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. Taxes 1040ez You must report the recapture on Form 4797. Taxes 1040ez See Section 1255 property under Other Gains in chapter 9. Taxes 1040ez Electing not to exclude payments. Taxes 1040ez   You can elect not to exclude all or part of any payments you receive under these programs. Taxes 1040ez If you make this election for all of these payments, none of the above restrictions and rules apply. Taxes 1040ez You must make this election by the due date, including extensions, for filing your return. Taxes 1040ez In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. Taxes 1040ez 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). Taxes 1040ez Write “Filed pursuant to section 301. Taxes 1040ez 9100-2” at the top of the amended return and file it at the same address you filed the original return. Taxes 1040ez Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. Taxes 1040ez You must include these payments on Schedule F, lines 4a and 4b. Taxes 1040ez The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. Taxes 1040ez You must include these payments on Schedule F, lines 6a and 6b. Taxes 1040ez The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. Taxes 1040ez Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. Taxes 1040ez As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. Taxes 1040ez If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxes 1040ez If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxes 1040ez Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. Taxes 1040ez Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. Taxes 1040ez The gain or loss is capital or ordinary depending on how you used the quota. Taxes 1040ez See Capital or ordinary gain or loss , later. Taxes 1040ez Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. Taxes 1040ez Adjusted basis. Taxes 1040ez   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Taxes 1040ez The basis of a quota derived from an original grant by the federal government is zero. Taxes 1040ez The basis of a purchased quota is the purchase price. Taxes 1040ez The basis of a quota received as a gift is generally the same as the donor's basis. Taxes 1040ez However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Taxes 1040ez If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. Taxes 1040ez The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Taxes 1040ez Reduction of basis. Taxes 1040ez   You are required to reduce the basis of your tobacco quota by the following amounts. Taxes 1040ez Deductions you took for amortization, depletion, or depreciation. Taxes 1040ez Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Taxes 1040ez The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Taxes 1040ez Amount treated as interest. Taxes 1040ez   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Taxes 1040ez The interest is reportable as ordinary income. Taxes 1040ez If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. Taxes 1040ez   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Taxes 1040ez You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Taxes 1040ez For more information, see Notice 2005-57, 2005-32 I. Taxes 1040ez R. Taxes 1040ez B. Taxes 1040ez 267, available at www. Taxes 1040ez irs. Taxes 1040ez gov/irb/2005-32_IRB/ar13. Taxes 1040ez html. Taxes 1040ez Installment method. Taxes 1040ez   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. Taxes 1040ez Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Taxes 1040ez See chapter 10 for more information. Taxes 1040ez Capital or ordinary gain or loss. Taxes 1040ez   Whether your gain or loss is ordinary or capital depends on how you used the quota. Taxes 1040ez Quota used in the trade or business of farming. Taxes 1040ez   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. Taxes 1040ez See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Taxes 1040ez Quota held for investment. Taxes 1040ez   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Taxes 1040ez The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Taxes 1040ez Gain treated as ordinary income. Taxes 1040ez   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. Taxes 1040ez Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Taxes 1040ez The cost of acquiring a quota. Taxes 1040ez Amounts for amortization, depletion, or depreciation. Taxes 1040ez Amounts to reflect a reduction in the quota pounds. Taxes 1040ez   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. Taxes 1040ez Self-employment income. Taxes 1040ez   The tobacco quota buyout payments are not self-employment income. Taxes 1040ez Income averaging for farmers. Taxes 1040ez   The gain or loss resulting from the quota payments does not qualify for income averaging. Taxes 1040ez A tobacco quota is considered an interest in land. Taxes 1040ez Income averaging is not available for gain or loss arising from the sale or other disposition of land. Taxes 1040ez Involuntary conversion. Taxes 1040ez   The buyout of the tobacco quota is not an involuntary conversion. Taxes 1040ez Form 1099-S. Taxes 1040ez   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. Taxes 1040ez The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. Taxes 1040ez Like-kind exchange of quota. Taxes 1040ez   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. Taxes 1040ez See Notice 2005-57 for more information. Taxes 1040ez Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. Taxes 1040ez Taxation of payments to tobacco growers. Taxes 1040ez   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Taxes 1040ez Individuals will generally report the payments as an Agricultural program payment on Schedule F. Taxes 1040ez If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. Taxes 1040ez Self-employment income. Taxes 1040ez   Payments to growers generally represent self-employment income. Taxes 1040ez If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. Taxes 1040ez Income averaging for farmers. Taxes 1040ez   Payments to growers who are individuals qualify for farm income averaging. Taxes 1040ez Form 1099-G. Taxes 1040ez   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. Taxes 1040ez Other Payments You must include most other government program payments in income. Taxes 1040ez Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Taxes 1040ez How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Taxes 1040ez Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Taxes 1040ez You must also capitalize the full cost of the improvement. Taxes 1040ez Since you have included the payments in income, they do not reduce your basis. Taxes 1040ez However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Taxes 1040ez National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. Taxes 1040ez You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Taxes 1040ez If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Taxes 1040ez If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. Taxes 1040ez Payment to More Than One Person The USDA reports program payments to the IRS. Taxes 1040ez It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). Taxes 1040ez If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. Taxes 1040ez You should file Form 1099-G to report the identity of the actual recipient to the IRS. Taxes 1040ez You should also give this information to the recipient. Taxes 1040ez You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Taxes 1040ez Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Taxes 1040ez However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Taxes 1040ez See chapter 16 for information about ordering Form 1099-G. Taxes 1040ez Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). Taxes 1040ez If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Taxes 1040ez Form 1099-PATR. Taxes 1040ez   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Taxes 1040ez Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. Taxes 1040ez For information on the alternative minimum tax, see the Instructions for Form 6251. Taxes 1040ez Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxes 1040ez They include the following items. Taxes 1040ez Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Taxes 1040ez The stated dollar value of qualified written notices of allocation. Taxes 1040ez The fair market value of other property. Taxes 1040ez Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. Taxes 1040ez You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Taxes 1040ez Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Taxes 1040ez If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Taxes 1040ez Qualified written notice of allocation. Taxes 1040ez   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. Taxes 1040ez A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. Taxes 1040ez The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. Taxes 1040ez You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Taxes 1040ez Signing and giving a written agreement to the cooperative. Taxes 1040ez Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Taxes 1040ez The cooperative must notify you in writing of this bylaw and give you a copy. Taxes 1040ez Endorsing and cashing a qualified check paid as part of the same patronage dividend. Taxes 1040ez You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. Taxes 1040ez Qualified check. Taxes 1040ez   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Taxes 1040ez It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. Taxes 1040ez It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. Taxes 1040ez Loss on redemption. Taxes 1040ez   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. Taxes 1040ez The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Taxes 1040ez Nonqualified notice of allocation. Taxes 1040ez   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Taxes 1040ez Your basis in the notice is zero. Taxes 1040ez You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Taxes 1040ez Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Taxes 1040ez However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. Taxes 1040ez   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. Taxes 1040ez For example, if it represents interest income, report it on your return as interest. Taxes 1040ez Buying or selling capital assets or depreciable property. Taxes 1040ez   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Taxes 1040ez You must, however, reduce the basis of these assets by the dividends. Taxes 1040ez This reduction is taken into account as of the first day of the tax year in which the dividends are received. Taxes 1040ez If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. Taxes 1040ez   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. Taxes 1040ez Example. Taxes 1040ez On July 1, 2012, Mr. Taxes 1040ez Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Taxes 1040ez The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). Taxes 1040ez Mr. Taxes 1040ez Brown files his return on a calendar year basis. Taxes 1040ez For 2012, he claimed a depreciation deduction of $311, using the 10. Taxes 1040ez 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Taxes 1040ez On July 2, 2013, the cooperative association paid Mr. Taxes 1040ez Brown a $300 cash patronage dividend for buying the machine. Taxes 1040ez Mr. Taxes 1040ez Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Taxes 1040ez Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. Taxes 1040ez 38% × 1. Taxes 1040ez 5 = 23. Taxes 1040ez 07% Depreciation deduction for 2013 ($2,289 × 23. Taxes 1040ez 07%) $528 Exceptions. Taxes 1040ez   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. Taxes 1040ez If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. Taxes 1040ez If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). Taxes 1040ez   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. Taxes 1040ez Personal purchases. Taxes 1040ez   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). Taxes 1040ez This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. Taxes 1040ez Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. Taxes 1040ez A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. Taxes 1040ez These allocations can be paid in money, other property, or qualified certificates. Taxes 1040ez Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Taxes 1040ez Qualified certificates. Taxes 1040ez   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. Taxes 1040ez The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. Taxes 1040ez If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxes 1040ez Nonqualified certificates. Taxes 1040ez   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Taxes 1040ez Your basis in the certificate is zero. Taxes 1040ez You must include in income any amount you receive from its sale, redemption, or other disposition. Taxes 1040ez Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. Taxes 1040ez Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Taxes 1040ez For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Taxes 1040ez General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Taxes 1040ez Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Taxes 1040ez It is excluded from taxable income (see Exclusions , later). Taxes 1040ez Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Taxes 1040ez If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Taxes 1040ez Election to defer income from discharge of indebtedness. Taxes 1040ez   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Taxes 1040ez Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. Taxes 1040ez See IRC section 108(i) and Publication 4681 for details. Taxes 1040ez Form 1099-C. Taxes 1040ez   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Taxes 1040ez The amount of debt canceled is shown in box 2. Taxes 1040ez Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Taxes 1040ez These exceptions apply before the exclusions discussed below. Taxes 1040ez Price reduced after purchase. Taxes 1040ez   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Taxes 1040ez Reduce your basis in the property by the amount of the reduction in the debt. Taxes 1040ez The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Taxes 1040ez Deductible debt. Taxes 1040ez   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Taxes 1040ez This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Taxes 1040ez Example. Taxes 1040ez You get accounting services for your farm on credit. Taxes 1040ez Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Taxes 1040ez Your accountant forgives part of the amount you owe for the accounting services. Taxes 1040ez How you treat the canceled debt depends on your method of accounting. Taxes 1040ez Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Taxes 1040ez Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Taxes 1040ez Exclusions Do not include canceled debt in income in the following situations. Taxes 1040ez The cancellation takes place in a bankruptcy case under title 11 of the U. Taxes 1040ez S. Taxes 1040ez Code. Taxes 1040ez The cancellation takes place when you are insolvent. Taxes 1040ez The canceled debt is a qualified farm debt. Taxes 1040ez The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Taxes 1040ez See Publication 334, Tax Guide for Small Business, chapter 5. Taxes 1040ez The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Taxes 1040ez The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. Taxes 1040ez If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. Taxes 1040ez If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. Taxes 1040ez See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Taxes 1040ez Debt. Taxes 1040ez   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Taxes 1040ez Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Taxes 1040ez Bankruptcy. Taxes 1040ez   A bankruptcy case is a case under title 11 of the U. Taxes 1040ez S. Taxes 1040ez Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Taxes 1040ez   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Taxes 1040ez Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Taxes 1040ez Insolvency. Taxes 1040ez   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. Taxes 1040ez   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Taxes 1040ez If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. Taxes 1040ez Otherwise, you include the difference in gross income. Taxes 1040ez Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Taxes 1040ez You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. Taxes 1040ez Example. Taxes 1040ez You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Taxes 1040ez Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Taxes 1040ez Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Taxes 1040ez You can exclude this amount from income. Taxes 1040ez The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Taxes 1040ez If not, you must include it in income. Taxes 1040ez Reduction of tax attributes. Taxes 1040ez   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. Taxes 1040ez Order of reduction. Taxes 1040ez   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Taxes 1040ez Net operating loss (NOL). Taxes 1040ez Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Taxes 1040ez Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Taxes 1040ez General business credit carryover. Taxes 1040ez Reduce the credit carryover to or from the tax year of the debt cancellation. Taxes 1040ez Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Taxes 1040ez Minimum tax credit. Taxes 1040ez Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Taxes 1040ez Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Taxes 1040ez Capital loss. Taxes 1040ez Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Taxes 1040ez Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Taxes 1040ez Basis. Taxes 1040ez Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Taxes 1040ez Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Taxes 1040ez Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. Taxes 1040ez Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Taxes 1040ez Inventory and accounts and notes receivable. Taxes 1040ez Other property. Taxes 1040ez Reduce the basis one dollar for each dollar of excluded canceled debt. Taxes 1040ez However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. Taxes 1040ez For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Taxes 1040ez 1017-1(b)(2). Taxes 1040ez Also see Electing to reduce the basis of depreciable property