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Turbo tax ammend 8. Turbo tax ammend   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Turbo tax ammend Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Turbo tax ammend It is similar to the straight line method of depreciation. Turbo tax ammend The various amortizable costs covered in this chapter are included in the list below. Turbo tax ammend However, this chapter does not discuss amortization of bond premium. Turbo tax ammend For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Turbo tax ammend Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Turbo tax ammend How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Turbo tax ammend To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Turbo tax ammend For example, in 2012, you began to amortize a lease. Turbo tax ammend In 2013, you began to amortize a second lease. Turbo tax ammend Report amortization from the new lease on line 42 of your 2013 Form 4562. Turbo tax ammend Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Turbo tax ammend If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Turbo tax ammend Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Turbo tax ammend Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Turbo tax ammend Generally, you recover costs for particular assets through depreciation deductions. Turbo tax ammend However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Turbo tax ammend For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Turbo tax ammend For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Turbo tax ammend The costs that are not deducted currently can be amortized ratably over a 180-month period. Turbo tax ammend The amortization period starts with the month you begin operating your active trade or business. Turbo tax ammend You are not required to attach a statement to make this election. Turbo tax ammend You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Turbo tax ammend Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Turbo tax ammend See Regulations sections 1. Turbo tax ammend 195-1, 1. Turbo tax ammend 248-1, and 1. Turbo tax ammend 709-1. Turbo tax ammend For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Turbo tax ammend Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Turbo tax ammend If the election is made, you must attach any statement required by Regulations sections 1. Turbo tax ammend 195-1(b), 1. Turbo tax ammend 248-1(c), and 1. Turbo tax ammend 709-1(c), as in effect before September 9, 2008. Turbo tax ammend Note. Turbo tax ammend You can apply the provisions of Regulations sections 1. Turbo tax ammend 195-1, 1. Turbo tax ammend 248-1, and 1. Turbo tax ammend 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Turbo tax ammend Otherwise, the provisions under Regulations sections 1. Turbo tax ammend 195-1(b), 1. Turbo tax ammend 248-1(c), and 1. Turbo tax ammend 709-1(c), as in effect before September 9, 2008, will apply. Turbo tax ammend For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Turbo tax ammend See How To Make the Election , later. Turbo tax ammend The cost must qualify as one of the following. Turbo tax ammend A business start-up cost. Turbo tax ammend An organizational cost for a corporation. Turbo tax ammend An organizational cost for a partnership. Turbo tax ammend Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Turbo tax ammend Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Turbo tax ammend Qualifying costs. Turbo tax ammend   A start-up cost is amortizable if it meets both of the following tests. Turbo tax ammend It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Turbo tax ammend It is a cost you pay or incur before the day your active trade or business begins. Turbo tax ammend   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Turbo tax ammend Advertisements for the opening of the business. Turbo tax ammend Salaries and wages for employees who are being trained and their instructors. Turbo tax ammend Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Turbo tax ammend Salaries and fees for executives and consultants, or for similar professional services. Turbo tax ammend Nonqualifying costs. Turbo tax ammend   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Turbo tax ammend See Research and Experimental Costs , later. Turbo tax ammend Purchasing an active trade or business. Turbo tax ammend   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Turbo tax ammend These are costs that help you decide whether to purchase a business. Turbo tax ammend Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Turbo tax ammend Example. Turbo tax ammend On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Turbo tax ammend They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Turbo tax ammend In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Turbo tax ammend The letter stated that a binding commitment would result only after a purchase agreement was signed. Turbo tax ammend The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Turbo tax ammend On October 22nd, you signed a purchase agreement with XYZ, Inc. Turbo tax ammend All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Turbo tax ammend Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Turbo tax ammend Disposition of business. Turbo tax ammend   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Turbo tax ammend However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Turbo tax ammend Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Turbo tax ammend Qualifying costs. Turbo tax ammend   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Turbo tax ammend   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Turbo tax ammend   Examples of organizational costs include: The cost of temporary directors. Turbo tax ammend The cost of organizational meetings. Turbo tax ammend State incorporation fees. Turbo tax ammend The cost of legal services. Turbo tax ammend Nonqualifying costs. Turbo tax ammend   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Turbo tax ammend Costs associated with the transfer of assets to the corporation. Turbo tax ammend Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Turbo tax ammend Qualifying costs. Turbo tax ammend   A partnership can amortize an organizational cost only if it meets all the following tests. Turbo tax ammend It is for the creation of the partnership and not for starting or operating the partnership trade or business. Turbo tax ammend It is chargeable to a capital account (see chapter 1). Turbo tax ammend It could be amortized over the life of the partnership if the partnership had a fixed life. Turbo tax ammend It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Turbo tax ammend However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Turbo tax ammend It is for a type of item normally expected to benefit the partnership throughout its entire life. Turbo tax ammend   Organizational costs include the following fees. Turbo tax ammend Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Turbo tax ammend Accounting fees for services incident to the organization of the partnership. Turbo tax ammend Filing fees. Turbo tax ammend Nonqualifying costs. Turbo tax ammend   The following costs cannot be amortized. Turbo tax ammend The cost of acquiring assets for the partnership or transferring assets to the partnership. Turbo tax ammend The cost of admitting or removing partners, other than at the time the partnership is first organized. Turbo tax ammend The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Turbo tax ammend The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Turbo tax ammend These “syndication fees” are capital expenses that cannot be depreciated or amortized. Turbo tax ammend Liquidation of partnership. Turbo tax ammend   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Turbo tax ammend However, these costs can be deducted only to the extent they qualify as a loss from a business. Turbo tax ammend How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Turbo tax ammend You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Turbo tax ammend Once you choose an amortization period, you cannot change it. Turbo tax ammend To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Turbo tax ammend The result is the amount you can deduct for each month. Turbo tax ammend Cash method partnership. Turbo tax ammend   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Turbo tax ammend However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Turbo tax ammend How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Turbo tax ammend You may also be required to attach an accompanying statement (described later) to your return. Turbo tax ammend For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Turbo tax ammend Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Turbo tax ammend 195-1, 1. Turbo tax ammend 248-1, and 1. Turbo tax ammend 709-1, you must also attach an accompanying statement to elect to amortize the costs. Turbo tax ammend If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Turbo tax ammend See Starting a Business , earlier, for more information. Turbo tax ammend Generally, you must file the return by the due date (including any extensions). Turbo tax ammend However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Turbo tax ammend For more information, see the instructions for Part VI of Form 4562. Turbo tax ammend You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Turbo tax ammend Note. Turbo tax ammend The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Turbo tax ammend If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Turbo tax ammend A shareholder or partner cannot make this election. Turbo tax ammend You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Turbo tax ammend Only the corporation or partnership can amortize these costs. Turbo tax ammend However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Turbo tax ammend These costs qualify as business start-up costs if you acquire the partnership interest. Turbo tax ammend Start-up costs election statement. Turbo tax ammend   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Turbo tax ammend A description of the business to which the start-up costs relate. Turbo tax ammend A description of each start-up cost incurred. Turbo tax ammend The month your active business began (or was acquired). Turbo tax ammend The number of months in your amortization period (which is generally 180 months). Turbo tax ammend Filing the statement early. Turbo tax ammend   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Turbo tax ammend If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Turbo tax ammend Revised statement. Turbo tax ammend   You can file a revised statement to include any start-up costs not included in your original statement. Turbo tax ammend However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Turbo tax ammend You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Turbo tax ammend Organizational costs election statement. Turbo tax ammend   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Turbo tax ammend A description of each cost. Turbo tax ammend The amount of each cost. Turbo tax ammend The date each cost was incurred. Turbo tax ammend The month your corporation or partnership began active business (or acquired the business). Turbo tax ammend The number of months in your amortization period (which is generally 180 months). Turbo tax ammend Partnerships. Turbo tax ammend   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Turbo tax ammend   You do not need to separately list any partnership organizational cost that is less than $10. Turbo tax ammend Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Turbo tax ammend   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Turbo tax ammend Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Turbo tax ammend The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Turbo tax ammend However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Turbo tax ammend For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Turbo tax ammend How to amortize. Turbo tax ammend   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Turbo tax ammend Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Turbo tax ammend You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Turbo tax ammend You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Turbo tax ammend See Anti-Churning Rules, later. Turbo tax ammend Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Turbo tax ammend The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Turbo tax ammend You cannot deduct amortization for the month you dispose of the intangible. Turbo tax ammend If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Turbo tax ammend You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Turbo tax ammend Tax-exempt use property subject to a lease. Turbo tax ammend   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Turbo tax ammend Cost attributable to other property. Turbo tax ammend   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Turbo tax ammend For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Turbo tax ammend Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Turbo tax ammend Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Turbo tax ammend You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Turbo tax ammend Goodwill. Turbo tax ammend   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Turbo tax ammend Going concern value. Turbo tax ammend   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Turbo tax ammend It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Turbo tax ammend It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Turbo tax ammend Workforce in place, etc. Turbo tax ammend   This includes the composition of a workforce (for example, its experience, education, or training). Turbo tax ammend It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Turbo tax ammend   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Turbo tax ammend Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Turbo tax ammend Business books and records, etc. Turbo tax ammend   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Turbo tax ammend It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Turbo tax ammend Patents, copyrights, etc. Turbo tax ammend   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Turbo tax ammend Customer-based intangible. Turbo tax ammend   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Turbo tax ammend For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Turbo tax ammend A customer base. Turbo tax ammend A circulation base. Turbo tax ammend An undeveloped market or market growth. Turbo tax ammend Insurance in force. Turbo tax ammend A mortgage servicing contract. Turbo tax ammend An investment management contract. Turbo tax ammend Any other relationship with customers involving the future provision of goods or services. Turbo tax ammend   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Turbo tax ammend Supplier-based intangible. Turbo tax ammend   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Turbo tax ammend The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Turbo tax ammend Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Turbo tax ammend Also, see Assets That Are Not Section 197 Intangibles below. Turbo tax ammend Government-granted license, permit, etc. Turbo tax ammend   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Turbo tax ammend For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Turbo tax ammend Covenant not to compete. Turbo tax ammend   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Turbo tax ammend An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Turbo tax ammend   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Turbo tax ammend Franchise, trademark, or trade name. Turbo tax ammend   A franchise, trademark, or trade name is a section 197 intangible. Turbo tax ammend You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Turbo tax ammend For information on currently deductible contingent payments, see chapter 11. Turbo tax ammend Professional sports franchise. Turbo tax ammend   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Turbo tax ammend Contract for the use of, or a term interest in, a section 197 intangible. Turbo tax ammend   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Turbo tax ammend It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Turbo tax ammend Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Turbo tax ammend Any interest in a corporation, partnership, trust, or estate. Turbo tax ammend Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Turbo tax ammend Any interest in land. Turbo tax ammend Most computer software. Turbo tax ammend (See Computer software , later. Turbo tax ammend ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Turbo tax ammend An interest in a film, sound recording, video tape, book, or similar property. Turbo tax ammend A right to receive tangible property or services under a contract or from a governmental agency. Turbo tax ammend An interest in a patent or copyright. Turbo tax ammend Certain rights that have a fixed duration or amount. Turbo tax ammend (See Rights of fixed duration or amount , later. Turbo tax ammend ) An interest under either of the following. Turbo tax ammend An existing lease or sublease of tangible property. Turbo tax ammend A debt that was in existence when the interest was acquired. Turbo tax ammend A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Turbo tax ammend Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Turbo tax ammend Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Turbo tax ammend You generally must use the straight line method over its useful life. Turbo tax ammend For certain intangibles, the depreciation period is specified in the law and regulations. Turbo tax ammend For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Turbo tax ammend For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Turbo tax ammend Computer software. Turbo tax ammend   Section 197 intangibles do not include the following types of computer software. Turbo tax ammend Software that meets all the following requirements. Turbo tax ammend It is, or has been, readily available for purchase by the general public. Turbo tax ammend It is subject to a nonexclusive license. Turbo tax ammend It has not been substantially modified. Turbo tax ammend This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Turbo tax ammend Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Turbo tax ammend Computer software defined. Turbo tax ammend   Computer software includes all programs designed to cause a computer to perform a desired function. Turbo tax ammend It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Turbo tax ammend Rights of fixed duration or amount. Turbo tax ammend   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Turbo tax ammend However, this does not apply to the following intangibles. Turbo tax ammend Goodwill. Turbo tax ammend Going concern value. Turbo tax ammend A covenant not to compete. Turbo tax ammend A franchise, trademark, or trade name. Turbo tax ammend A customer-related information base, customer-based intangible, or similar item. Turbo tax ammend Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Turbo tax ammend You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Turbo tax ammend If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Turbo tax ammend Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Turbo tax ammend Amortize these costs using the rules of Revenue Procedure 2004-36. Turbo tax ammend For more information, see Revenue Procedure 2004-36, 2004-24 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 1063, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2004-24_IRB/ar16. Turbo tax ammend html. Turbo tax ammend A change in the treatment of creative property costs is a change in method of accounting. Turbo tax ammend Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Turbo tax ammend These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Turbo tax ammend Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Turbo tax ammend You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Turbo tax ammend You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Turbo tax ammend You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Turbo tax ammend This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Turbo tax ammend See Related person , later, for more information. Turbo tax ammend Exceptions. Turbo tax ammend   The anti-churning rules do not apply in the following situations. Turbo tax ammend You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Turbo tax ammend The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Turbo tax ammend This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Turbo tax ammend The gain-recognition exception, discussed later, applies. Turbo tax ammend Related person. Turbo tax ammend   For purposes of the anti-churning rules, the following are related persons. Turbo tax ammend An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Turbo tax ammend ), and lineal descendants (children, grandchildren, etc. Turbo tax ammend ). Turbo tax ammend A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Turbo tax ammend Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Turbo tax ammend (For an exception, see section 1. Turbo tax ammend 197-2(h)(6)(iv) of the regulations. Turbo tax ammend ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Turbo tax ammend The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Turbo tax ammend The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Turbo tax ammend The executor and beneficiary of an estate. Turbo tax ammend A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Turbo tax ammend A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Turbo tax ammend Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Turbo tax ammend Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Turbo tax ammend A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Turbo tax ammend Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Turbo tax ammend When to determine relationship. Turbo tax ammend   Persons are treated as related if the relationship existed at the following time. Turbo tax ammend In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Turbo tax ammend In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Turbo tax ammend Ownership of stock. Turbo tax ammend   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Turbo tax ammend Rule 1. Turbo tax ammend   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Turbo tax ammend Rule 2. Turbo tax ammend   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Turbo tax ammend Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Turbo tax ammend Rule 3. Turbo tax ammend   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Turbo tax ammend Rule 4. Turbo tax ammend   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Turbo tax ammend Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Turbo tax ammend Gain-recognition exception. Turbo tax ammend   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Turbo tax ammend That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Turbo tax ammend That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Turbo tax ammend See chapter 2 in Publication 544 for information on making this choice. Turbo tax ammend   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Turbo tax ammend Notification. Turbo tax ammend   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Turbo tax ammend Anti-abuse rule. Turbo tax ammend   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Turbo tax ammend To avoid the requirement that the intangible be acquired after August 10, 1993. Turbo tax ammend To avoid any of the anti-churning rules. Turbo tax ammend More information. Turbo tax ammend   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Turbo tax ammend 197-2(h). Turbo tax ammend Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Turbo tax ammend See Amended Return , next. Turbo tax ammend If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Turbo tax ammend See Changing Your Accounting Method , later. Turbo tax ammend Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Turbo tax ammend A mathematical error made in any year. Turbo tax ammend A posting error made in any year. Turbo tax ammend An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Turbo tax ammend When to file. Turbo tax ammend   If an amended return is allowed, you must file it by the later of the following dates. Turbo tax ammend 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Turbo tax ammend (A return filed early is considered filed on the due date. Turbo tax ammend ) 2 years from the time you paid your tax for that year. Turbo tax ammend Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Turbo tax ammend File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Turbo tax ammend The following are examples of a change in method of accounting for amortization. Turbo tax ammend A change in the amortization method, period of recovery, or convention of an amortizable asset. Turbo tax ammend A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Turbo tax ammend A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Turbo tax ammend Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Turbo tax ammend An adjustment in the useful life of an amortizable asset. Turbo tax ammend Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Turbo tax ammend Any change in the placed-in-service date of an amortizable asset. Turbo tax ammend See Regulations section 1. Turbo tax ammend 446-1(e)(2)(ii)(a) for more information and examples. Turbo tax ammend Automatic approval. Turbo tax ammend   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Turbo tax ammend For a list of automatic accounting method changes, see the Instructions for Form 3115. Turbo tax ammend Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Turbo tax ammend For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Turbo tax ammend See Revenue Procedure 2006-12, 2006-3 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 310, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2006-03_IRB/ar14. Turbo tax ammend html. Turbo tax ammend  See Revenue Procedure 2006-37, 2006-38 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 499, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2006-38_IRB/ar10. Turbo tax ammend html. Turbo tax ammend  See Revenue Procedure 2008-52, 2008-36 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 587, available at www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2008-36_IRB/ar09. Turbo tax ammend html. Turbo tax ammend  See Revenue Procedure 2009-39, 2009-38 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 371, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2009-38_IRB/ar08. Turbo tax ammend html. Turbo tax ammend  See Revenue Procedure 2011-14, 2011-4 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 330, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2011-04_IRB/ar08. Turbo tax ammend html. Turbo tax ammend  See Revenue Procedure 2011-22, 2011-18 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 737, available at  www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2011-18_IRB/ar08. Turbo tax ammend html. Turbo tax ammend Also, see Revenue Procedure 2012-39, 2012-41 I. Turbo tax ammend R. Turbo tax ammend B. Turbo tax ammend 470 available at www. Turbo tax ammend irs. Turbo tax ammend gov/irb/2012-41_IRB/index. Turbo tax ammend html. Turbo tax ammend Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Turbo tax ammend If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Turbo tax ammend If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Turbo tax ammend Any remaining gain, or any loss, is a section 1231 gain or loss. Turbo tax ammend If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Turbo tax ammend For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Turbo tax ammend Nondeductible loss. Turbo tax ammend   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Turbo tax ammend Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Turbo tax ammend Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Turbo tax ammend The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Turbo tax ammend The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Turbo tax ammend Covenant not to compete. Turbo tax ammend   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Turbo tax ammend Nonrecognition transfers. Turbo tax ammend   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Turbo tax ammend You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Turbo tax ammend Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Turbo tax ammend   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Turbo tax ammend Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Turbo tax ammend Example. Turbo tax ammend You own a section 197 intangible you have amortized for 4 full years. Turbo tax ammend It has a remaining unamortized basis of $30,000. Turbo tax ammend You exchange the asset plus $10,000 for a like-kind section 197 intangible. Turbo tax ammend The nonrecognition provisions of like-kind exchanges apply. Turbo tax ammend You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Turbo tax ammend You amortize the other $10,000 of adjusted basis over a new 15-year period. Turbo tax ammend For more information, see Regulations section 1. Turbo tax ammend 197-2(g). Turbo tax ammend Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Turbo tax ammend See Reforestation Costs in chapter 7. Turbo tax ammend You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Turbo tax ammend There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Turbo tax ammend The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Turbo tax ammend A partner, shareholder, or beneficiary cannot make that election. Turbo tax ammend A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Turbo tax ammend , of a partnership or S corporation. Turbo tax ammend The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Turbo tax ammend Qualifying costs. Turbo tax ammend   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Turbo tax ammend Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Turbo tax ammend They include costs for the following items. Turbo tax ammend Site preparation. Turbo tax ammend Seeds or seedlings. Turbo tax ammend Labor. Turbo tax ammend Tools. Turbo tax ammend Depreciation on equipment used in planting and seeding. Turbo tax ammend Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Turbo tax ammend Qualified timber property. Turbo tax ammend   Qualified timber property is property that contains trees in significant commercial quantities. Turbo tax ammend It can be a woodlot or other site that you own or lease. Turbo tax ammend The property qualifies only if it meets all of the following requirements. Turbo tax ammend It is located in the United States. Turbo tax ammend It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Turbo tax ammend It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Turbo tax ammend Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Turbo tax ammend Amortization period. Turbo tax ammend   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Turbo tax ammend You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Turbo tax ammend Life tenant and remainderman. Turbo tax ammend   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Turbo tax ammend Any remainder interest in the property is ignored for amortization purposes. Turbo tax ammend Recapture. Turbo tax ammend   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Turbo tax ammend See chapter 3 of Publication 544 for more information. Turbo tax ammend How to make the election. Turbo tax ammend   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Turbo tax ammend A description of the costs and the dates you incurred them. Turbo tax ammend A description of the type of timber being grown and the purpose for which it is grown. Turbo tax ammend Attach a separate statement for each property for which you amortize reforestation costs. Turbo tax ammend   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Turbo tax ammend However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Turbo tax ammend Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Turbo tax ammend 9100-2” on Form 4562. Turbo tax ammend File the amended return at the same address you filed the original return. Turbo tax ammend Revoking the election. Turbo tax ammend   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Turbo tax ammend Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Turbo tax ammend Please provide your daytime telephone number (optional), in case we need to contact you. Turbo tax ammend You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Turbo tax ammend    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Turbo tax ammend NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Turbo tax ammend These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Turbo tax ammend For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Turbo tax ammend If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Turbo tax ammend Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Turbo tax ammend However, see Atmospheric pollution control facilities for an exception. Turbo tax ammend The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Turbo tax ammend Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Turbo tax ammend You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Turbo tax ammend See chapter 3 of Publication 946. Turbo tax ammend A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Turbo tax ammend The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Turbo tax ammend The facility must be certified by state and federal certifying authorities. Turbo tax ammend The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Turbo tax ammend Also, it must not significantly change the nature of the manufacturing or production process or facility. Turbo tax ammend The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Turbo tax ammend The federal certifying authority will describe the nature of the potential cost recovery. Turbo tax ammend You must then reduce the amortizable basis of the facility by this potential recovery. Turbo tax ammend New identifiable treatment facility. Turbo tax ammend   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Turbo tax ammend It does not include a building and its structural components unless the building is exclusively a treatment facility. Turbo tax ammend Atmospheric pollution control facilities. Turbo tax ammend   Certain atmospheric pollution control facilities can be amortized over 84 months. Turbo tax ammend To qualify, the following must apply. Turbo tax ammend The facility must be acquired and placed in service after April 11, 2005. Turbo tax ammend If acquired, the original use must begin with you after April 11, 2005. Turbo tax ammend The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Turbo tax ammend If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Turbo tax ammend Basis reduction for corporations. Turbo tax ammend   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Turbo tax ammend More information. Turbo tax ammend   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Turbo tax ammend Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Turbo tax ammend If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Turbo tax ammend The amortization period begins the month you first receive an economic benefit from the costs. Turbo tax ammend For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Turbo tax ammend Optional write-off method. Turbo tax ammend   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Turbo tax ammend For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Turbo tax ammend Costs you can amortize. Turbo tax ammend   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Turbo tax ammend You paid or incurred the costs in your trade or business. Turbo tax ammend You are not deducting the costs currently. Turbo tax ammend How to make the election. Turbo tax ammend   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Turbo tax ammend Generally, you must file the return by the due date (including extensions). Turbo tax ammend However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Turbo tax ammend Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Turbo tax ammend 9100-2” on Form 4562. Turbo tax ammend File the amended return at the same address you filed the original return. Turbo tax ammend   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Turbo tax ammend Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Turbo tax ammend If you make this election, there is no AMT adjustment. Turbo tax ammend The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Turbo tax ammend How to make the election. Turbo tax ammend   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Turbo tax ammend   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Turbo tax ammend However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Turbo tax ammend Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Turbo tax ammend 9100-2” on Form 4562. Turbo tax ammend File the amended return at the same address you filed the original return. Turbo tax ammend Revoking the election. Turbo tax ammend   You must obtain consent from the IRS to revoke your election. Turbo tax ammend Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Turbo tax ammend The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Turbo tax ammend If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Turbo tax ammend Prev  Up  Next   Home   More Online Publications
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The Turbo Tax Ammend

Turbo tax ammend 2. Turbo tax ammend   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Turbo tax ammend The pay may be in cash, property, or services. Turbo tax ammend It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Turbo tax ammend For information about deducting employment taxes, see chapter 5. Turbo tax ammend You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Turbo tax ammend Empowerment zone employment credit (Form 8844). Turbo tax ammend Indian employment credit (Form 8845). Turbo tax ammend Work opportunity credit (Form 5884). Turbo tax ammend Credit for employer differential wage payments (Form 8932). Turbo tax ammend Reduce your deduction for employee wages by the amount of employment credits you claim. Turbo tax ammend For more information about these credits, see the form on which the credit is claimed. Turbo tax ammend Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Turbo tax ammend Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Turbo tax ammend These and other requirements that apply to all business expenses are explained in chapter 1. Turbo tax ammend In addition, the pay must meet both of the following tests. Turbo tax ammend Test 1. Turbo tax ammend It must be reasonable. Turbo tax ammend Test 2. Turbo tax ammend It must be for services performed. Turbo tax ammend The form or method of figuring the pay does not affect its deductibility. Turbo tax ammend For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Turbo tax ammend Test 1—Reasonableness You must be able to prove that the pay is reasonable. Turbo tax ammend Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Turbo tax ammend If the pay is excessive, the excess pay is disallowed as a deduction. Turbo tax ammend Factors to consider. Turbo tax ammend   Determine the reasonableness of pay by the facts and circumstances. Turbo tax ammend Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Turbo tax ammend   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Turbo tax ammend The duties performed by the employee. Turbo tax ammend The volume of business handled. Turbo tax ammend The character and amount of responsibility. Turbo tax ammend The complexities of your business. Turbo tax ammend The amount of time required. Turbo tax ammend The cost of living in the locality. Turbo tax ammend The ability and achievements of the individual employee performing the service. Turbo tax ammend The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Turbo tax ammend Your policy regarding pay for all your employees. Turbo tax ammend The history of pay for each employee. Turbo tax ammend Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Turbo tax ammend Employee-shareholder salaries. Turbo tax ammend   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Turbo tax ammend The excessive part of the salary would not be allowed as a salary deduction by the corporation. Turbo tax ammend For more information on corporate distributions to shareholders, see Publication 542, Corporations. Turbo tax ammend Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Turbo tax ammend For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Turbo tax ammend Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Turbo tax ammend If you give property to an employee as an employee achievement award, your deduction may be limited. Turbo tax ammend Achievement awards. Turbo tax ammend   An achievement award is an item of tangible personal property that meets all the following requirements. Turbo tax ammend It is given to an employee for length of service or safety achievement. Turbo tax ammend It is awarded as part of a meaningful presentation. Turbo tax ammend It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Turbo tax ammend Length-of-service award. Turbo tax ammend    An award will qualify as a length-of-service award only if either of the following applies. Turbo tax ammend The employee receives the award after his or her first 5 years of employment. Turbo tax ammend The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Turbo tax ammend Safety achievement award. Turbo tax ammend    An award for safety achievement will qualify as an achievement award unless one of the following applies. Turbo tax ammend It is given to a manager, administrator, clerical employee, or other professional employee. Turbo tax ammend During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Turbo tax ammend Deduction limit. Turbo tax ammend   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Turbo tax ammend $400 for awards that are not qualified plan awards. Turbo tax ammend $1,600 for all awards, whether or not qualified plan awards. Turbo tax ammend   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Turbo tax ammend   A highly compensated employee is an employee who meets either of the following tests. Turbo tax ammend The employee was a 5% owner at any time during the year or the preceding year. Turbo tax ammend The employee received more than $115,000 in pay for the preceding year. Turbo tax ammend You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Turbo tax ammend   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Turbo tax ammend To figure this average cost, ignore awards of nominal value. Turbo tax ammend Deduct achievement awards as a nonwage business expense on your return or business schedule. Turbo tax ammend You may not owe employment taxes on the value of some achievement awards you provide to an employee. Turbo tax ammend See Publication 15-B. Turbo tax ammend Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Turbo tax ammend However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Turbo tax ammend If the bonus is paid in property, see Property , later. Turbo tax ammend Gifts of nominal value. Turbo tax ammend    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Turbo tax ammend Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Turbo tax ammend For more information on this deduction limit, see Meals and lodging , later. Turbo tax ammend Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Turbo tax ammend Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Turbo tax ammend For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Turbo tax ammend Fringe Benefits A fringe benefit is a form of pay for the performance of services. Turbo tax ammend You can generally deduct the cost of fringe benefits. Turbo tax ammend You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Turbo tax ammend You also may not owe employment taxes on the value of the fringe benefits. Turbo tax ammend See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Turbo tax ammend Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Turbo tax ammend Certain fringe benefits are discussed next. Turbo tax ammend See Publication 15-B for more details on these and other fringe benefits. Turbo tax ammend Meals and lodging. Turbo tax ammend   You can usually deduct the cost of furnishing meals and lodging to your employees. Turbo tax ammend Deduct the cost in whatever category the expense falls. Turbo tax ammend For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Turbo tax ammend If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Turbo tax ammend Deduction limit on meals. Turbo tax ammend   You can generally deduct only 50% of the cost of furnishing meals to your employees. Turbo tax ammend However, you can deduct the full cost of the following meals. Turbo tax ammend Meals whose value you include in an employee's wages. Turbo tax ammend Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Turbo tax ammend This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Turbo tax ammend Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Turbo tax ammend Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Turbo tax ammend Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Turbo tax ammend This does not include meals you furnish on vessels primarily providing luxury water transportation. Turbo tax ammend Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Turbo tax ammend This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Turbo tax ammend Employee benefit programs. Turbo tax ammend   Employee benefit programs include the following. Turbo tax ammend Accident and health plans. Turbo tax ammend Adoption assistance. Turbo tax ammend Cafeteria plans. Turbo tax ammend Dependent care assistance. Turbo tax ammend Education assistance. Turbo tax ammend Life insurance coverage. Turbo tax ammend Welfare benefit funds. Turbo tax ammend   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Turbo tax ammend For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Turbo tax ammend ). Turbo tax ammend Life insurance coverage. Turbo tax ammend   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Turbo tax ammend See Regulations section 1. Turbo tax ammend 264-1 for more information. Turbo tax ammend Welfare benefit funds. Turbo tax ammend   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Turbo tax ammend Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Turbo tax ammend   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Turbo tax ammend If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Turbo tax ammend   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Turbo tax ammend The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Turbo tax ammend The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Turbo tax ammend These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Turbo tax ammend   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Turbo tax ammend Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Turbo tax ammend However, if the employee performs no services, treat the amount you advanced as a loan. Turbo tax ammend If the employee does not repay the loan, treat it as income to the employee. Turbo tax ammend Below-market interest rate loans. Turbo tax ammend   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Turbo tax ammend See Below-Market Loans in chapter 4. Turbo tax ammend Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Turbo tax ammend The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Turbo tax ammend You can claim the deduction only for the tax year in which your employee includes the property's value in income. Turbo tax ammend Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Turbo tax ammend You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Turbo tax ammend Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Turbo tax ammend These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Turbo tax ammend Restricted property. Turbo tax ammend   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Turbo tax ammend However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Turbo tax ammend    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Turbo tax ammend This means that the recipient is not likely to have to give up his or her rights in the property in the future. Turbo tax ammend Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Turbo tax ammend However, your deduction may be limited. Turbo tax ammend If you make the payment under an accountable plan, deduct it in the category of the expense paid. Turbo tax ammend For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Turbo tax ammend If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Turbo tax ammend See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Turbo tax ammend Sick and Vacation Pay Sick pay. Turbo tax ammend   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Turbo tax ammend However, your deduction is limited to amounts not compensated by insurance or other means. Turbo tax ammend Vacation pay. Turbo tax ammend   Vacation pay is an employee benefit. Turbo tax ammend It includes amounts paid for unused vacation leave. Turbo tax ammend You can deduct vacation pay only in the tax year in which the employee actually receives it. Turbo tax ammend This rule applies regardless of whether you use the cash or accrual method of accounting. Turbo tax ammend Prev  Up  Next   Home   More Online Publications