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1040es Form

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1040es Form

1040es form 30. 1040es form   How To Figure Your Tax Table of Contents Introduction Figuring Your Tax Alternative Minimum Tax (AMT) Tax Figured by IRSFiling the Return Introduction After you have figured your income and deductions as explained in Parts One through Five, your next step is to figure your tax. 1040es form This chapter discusses: The general steps you take to figure your tax, An additional tax you may have to pay called the alternative minimum tax (AMT), and The conditions you must meet if you want the IRS to figure your tax. 1040es form Figuring Your Tax Your income tax is based on your taxable income. 1040es form After you figure your income tax and AMT, if any, subtract your tax credits and add any other taxes you may owe. 1040es form The result is your total tax. 1040es form Compare your total tax with your total payments to determine whether you are entitled to a refund or if you must make a payment. 1040es form This section provides a general outline of how to figure your tax. 1040es form You can find step-by-step directions in the Instructions for Forms 1040EZ, 1040A, and 1040. 1040es form If you are unsure of which tax form you should file, see Which Form Should I Use? in chapter 1. 1040es form Tax. 1040es form   Most taxpayers use either the Tax Table or the Tax Computation Worksheet to figure their income tax. 1040es form However, there are special methods if your income includes any of the following items. 1040es form A net capital gain. 1040es form (See chapter 16. 1040es form ) Qualified dividends taxed at the same rates as a net capital gain. 1040es form (See chapters 8 and 16. 1040es form ) Lump-sum distributions. 1040es form (See chapter 10. 1040es form ) Farming or fishing income. 1040es form (See Schedule J (Form 1040), Income Averaging for Farmers and Fishermen. 1040es form ) Unearned income over $2,000 for certain children. 1040es form (See chapter 31. 1040es form ) Parents' election to report child's interest and dividends. 1040es form (See chapter 31. 1040es form ) Foreign earned income exclusion or the housing exclusion. 1040es form (See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, and the Foreign Earned Income Tax Worksheet in the Form 1040 instructions. 1040es form ) Credits. 1040es form   After you figure your income tax and any AMT (discussed later), determine if you are eligible for any tax credits. 1040es form Eligibility information for these tax credits is discussed in chapters 32 through 37 and your form instructions. 1040es form The following table lists the credits you may be able to subtract from your tax and shows where you can find more information on each credit. 1040es form CREDITS For information on: See  chapter: Adoption 37 Alternative motor vehicle 37 Alternative fuel vehicle refueling  property 37 Child and dependent care 32 Child tax 34 Credit to holders of tax credit  bonds 37 Education 35 Elderly or disabled 33 Electric vehicle 37 Foreign tax 37 Mortgage interest 37 Prior year minimum tax 37 Residential energy 37 Retirement savings contributions 37   Some credits (such as the earned income credit) are not listed because they are treated as payments. 1040es form See Payments , later. 1040es form   There are other credits that are not discussed in this publication. 1040es form These include the following credits. 1040es form General business credit, which is made up of several separate business-related credits. 1040es form These generally are reported on Form 3800, General Business Credit, and are discussed in chapter 4 of Publication 334, Tax Guide for Small Business. 1040es form Renewable electricity, refined coal, and Indian coal production credit for electricity and refined coal produced at facilities placed in service after October 22, 2004 (after October 2, 2008, for electricity produced from marine and hydrokinetic renewables), and Indian coal produced at facilities placed in service after August 8, 2005. 1040es form See Form 8835, Part II. 1040es form Work opportunity credit. 1040es form See Form 5884. 1040es form Credit for employer social security and Medicare taxes paid on certain employee tips. 1040es form See Form 8846. 1040es form Other taxes. 1040es form   After you subtract your tax credits, determine whether there are any other taxes you must pay. 1040es form This chapter does not explain these other taxes. 1040es form You can find that information in other chapters of this publication and your form instructions. 1040es form See the following table for other taxes you may need to add to your income tax. 1040es form OTHER TAXES For information on: See  chapter: Additional taxes on qualified retirement plans and IRAs 10, 17 Household employment taxes 32 Recapture of an education credit 35 Social security and Medicare tax on wages 5 Social security and Medicare tax on tips 6 Uncollected social security and Medicare tax on tips 6   You also may have to pay AMT (discussed later in this chapter). 1040es form   There are other taxes that are not discussed in this publication. 1040es form These include the following items. 1040es form Self-employment tax. 1040es form You must figure this tax if either of the following applies to you (or your spouse if you file a joint return). 1040es form Your net earnings from self-employment from other than church employee income were $400 or more. 1040es form The term “net earnings from self-employment” may include certain nonemployee compensation and other amounts reported to you on Form 1099-MISC, Miscellaneous Income. 1040es form If you received a Form 1099-MISC, see the Instructions for Recipient on the back. 1040es form Also see the Instructions for Schedule SE (Form 1040), Self-Employment Tax; and Publication 334, Tax Guide for Small Business. 1040es form You had church employee income of $108. 1040es form 28 or more. 1040es form Additional Medicare Tax. 1040es form Beginning in 2013, you may be subject to a 0. 1040es form 9% Additional Medicare Tax that applies to Medicare wages, Railroad Retirement Act compensation, and self-employment income over a threshold based on your filing status. 1040es form For more information, see the Instructions for Form 1040, line 60 and Form 8959. 1040es form Net Investment Income Tax (NIIT). 1040es form Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). 1040es form NIIT is a 3. 1040es form 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income over a threshold amount. 1040es form For more information, see the Instructions for Form 1040, line 60 and Form 8960. 1040es form Recapture taxes. 1040es form You may have to pay these taxes if you previously claimed an investment credit, a low-income housing credit, a new markets credit, a qualified plug-in electric drive motor vehicle credit, an alternative motor vehicle credit, a credit for employer-provided child care facilities, an Indian employment credit, or other credits listed in the instructions for Form 1040, line 60. 1040es form For more information, see the instructions for Form 1040, line 60. 1040es form Section 72(m)(5) excess benefits tax. 1040es form If you are (or were) a 5% owner of a business and you received a distribution that exceeds the benefits provided for you under the qualified pension or annuity plan formula, you may have to pay this additional tax. 1040es form See Tax on Excess Benefits in chapter 4 of Publication 560, Retirement Plans for Small Business. 1040es form Uncollected social security and Medicare tax on group-term life insurance. 1040es form If your former employer provides you with more than $50,000 of group-term life insurance coverage, you must pay the employee part of social security and Medicare taxes on those premiums. 1040es form The amount should be shown in box 12 of your Form W-2 with codes M and N. 1040es form Tax on golden parachute payments. 1040es form This tax applies if you received an “excess parachute payment” (EPP) due to a change in a corporation's ownership or control. 1040es form The amount should be shown in box 12 of your Form W-2 with code K. 1040es form See the instructions for Form 1040, line 60. 1040es form Tax on accumulation distribution of trusts. 1040es form This applies if you are the beneficiary of a trust that accumulated its income instead of distributing it currently. 1040es form See Form 4970 and its instructions. 1040es form Additional tax on HSAs or MSAs. 1040es form If amounts contributed to, or distributed from, your health savings account or medical savings account do not meet the rules for these accounts, you may have to pay additional taxes. 1040es form See Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans; Form 8853, Archer MSAs and Long-Term Care Insurance Contracts; Form 8889, Health Savings Accounts (HSAs); and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. 1040es form Additional tax on Coverdell ESAs. 1040es form This applies if amounts contributed to, or distributed from, your Coverdell ESA do not meet the rules for these accounts. 1040es form See Publication 970, Tax Benefits for Education, and Form 5329. 1040es form Additional tax on qualified tuition programs. 1040es form This applies to amounts distributed from qualified tuition programs that do not meet the rules for these accounts. 1040es form See Publication 970 and Form 5329. 1040es form Excise tax on insider stock compensation from an expatriated corporation. 1040es form You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. 1040es form For more information, see the instructions for Form 1040, line 60. 1040es form Additional tax on income you received from a nonqualified deferred compensation plan that fails to meet certain requirements. 1040es form This income should be shown in Form W-2, box 12, with code Z, or in Form 1099-MISC, box 15b. 1040es form For more information, see the instructions for Form 1040, line 60. 1040es form Interest on the tax due on installment income from the sale of certain residential lots and timeshares. 1040es form For more information, see the instructions for Form 1040, line 60. 1040es form Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000. 1040es form For more information, see the instructions for Form 1040, line 60. 1040es form Repayment of first-time homebuyer credit. 1040es form For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. 1040es form Also see the instructions for Form 1040, line 59b. 1040es form Payments. 1040es form   After you determine your total tax, figure the total payments you have already made for the year. 1040es form Include credits that are treated as payments. 1040es form This chapter does not explain these payments and credits. 1040es form You can find that information in other chapters of this publication and your form instructions. 1040es form See the following table for amounts you can include in your total payments. 1040es form PAYMENTS For information on: See  chapter: Child tax credit (additional) 34 Earned income credit 36 Estimated tax paid 4 Excess social security   and RRTA tax withheld 37 Federal income tax withheld 4 Health coverage tax credit 37 Credit for tax on   undistributed capital gain 37 Tax paid with extension 1   Another credit that is treated as a payment is the credit for federal excise tax paid on fuels. 1040es form This credit is for persons who have a nontaxable use of certain fuels, such as diesel fuel and kerosene. 1040es form It is claimed on Form 1040, line 70. 1040es form See Form 4136, Credit for Federal Tax Paid on Fuels. 1040es form Refund or balance due. 1040es form   To determine whether you are entitled to a refund or whether you must make a payment, compare your total payments with your total tax. 1040es form If you are entitled to a refund, see your form instructions for information on having it directly deposited into one or more of your accounts, or to purchase U. 1040es form S. 1040es form savings bonds instead of receiving a paper check. 1040es form Alternative Minimum Tax (AMT) This section briefly discusses an additional tax you may have to pay. 1040es form The tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. 1040es form Taxpayers who benefit from this special treatment may have to pay at least a minimum amount of tax through an additional tax called AMT. 1040es form You may have to pay the AMT if your taxable income for regular tax purposes, combined with certain adjustments and tax preference items, is more than a certain amount. 1040es form See Form 6251, Alternative Minimum Tax — Individuals. 1040es form Adjustments and tax preference items. 1040es form   The more common adjustments and tax preference items include: Addition of personal exemptions, Addition of the standard deduction (if claimed), Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses, Subtraction of any refund of state and local taxes included in gross income, Changes to accelerated depreciation of certain property, Difference between gain or loss on the sale of property reported for regular tax purposes and AMT purposes, Addition of certain income from incentive stock options, Change in certain passive activity loss deductions, Addition of certain depletion that is more than the adjusted basis of the property, Addition of part of the deduction for certain intangible drilling costs, and Addition of tax-exempt interest on certain private activity bonds. 1040es form More information. 1040es form   For more information about the AMT, see the instructions for Form 6251. 1040es form Tax Figured by IRS If you file by April 15, 2014, you can have the IRS figure your tax for you on Form 1040EZ, Form 1040A, or Form 1040. 1040es form If the IRS figures your tax and you paid too much, you will receive a refund. 1040es form If you did not pay enough, you will receive a bill for the balance. 1040es form To avoid interest or the penalty for late payment, you must pay the bill within 30 days of the date of the bill or by the due date for your return, whichever is later. 1040es form The IRS can also figure the credit for the elderly or the disabled and the earned income credit for you. 1040es form When the IRS cannot figure your tax. 1040es form   The IRS cannot figure your tax for you if any of the following apply. 1040es form You want your refund directly deposited into your accounts. 1040es form You want any part of your refund applied to your 2014 estimated tax. 1040es form You had income for the year from sources other than wages, salaries, tips, interest, dividends, taxable social security benefits, unemployment compensation, IRA distributions, pensions, and annuities. 1040es form Your taxable income is $100,000 or more. 1040es form You itemize deductions. 1040es form You file any of the following forms. 1040es form Form 2555, Foreign Earned Income. 1040es form Form 2555-EZ, Foreign Earned Income Exclusion. 1040es form Form 4137, Social Security and Medicare Tax on Unreported Tip Income. 1040es form Form 4970, Tax on Accumulation Distribution of Trusts. 1040es form Form 4972, Tax on Lump-Sum Distributions. 1040es form Form 6198, At-Risk Limitations. 1040es form Form 6251, Alternative Minimum Tax—Individuals. 1040es form Form 8606, Nondeductible IRAs. 1040es form Form 8615, Tax for Certain Children Who Have Unearned Income. 1040es form Form 8814, Parents' Election To Report Child's Interest and Dividends. 1040es form Form 8839, Qualified Adoption Expenses. 1040es form Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 1040es form Form 8889, Health Savings Accounts (HSAs). 1040es form Form 8919, Uncollected Social Security and Medicare Tax on Wages. 1040es form Filing the Return After you complete the line entries for the tax form you are filing, fill in your name and address. 1040es form Enter your social security number in the space provided. 1040es form If you are married, enter the social security numbers of you and your spouse even if you file separately. 1040es form Sign and date your return and enter your occupation(s). 1040es form If you are filing a joint return, both you and your spouse must sign it. 1040es form Enter your daytime phone number in the space provided. 1040es form This may help speed the processing of your return if we have a question that can be answered over the phone. 1040es form If you are filing a joint return, you may enter either your or your spouse's daytime phone number. 1040es form If you want to allow a friend, family member, or any other person you choose to discuss your 2013 tax return with the IRS, check the “Yes” box in the “Third party designee” area on your return. 1040es form Also enter the designee's name, phone number, and any five digits the designee chooses as his or her personal identification number (PIN). 1040es form If you check the “Yes” box, you, and your spouse if filing a joint return, are authorizing the IRS to call the designee to answer any questions that may arise during the processing of your return. 1040es form Fill in and attach any schedules and forms asked for on the lines you completed to your paper return. 1040es form Attach a copy of each of your Forms W-2 to your paper return. 1040es form Also attach to your paper return any Form 1099-R you received that has withholding tax in box 4. 1040es form Mail your return to the Internal Revenue Service Center for the area where you live. 1040es form A list of Service Center addresses is in the instructions for your tax return. 1040es form Form 1040EZ Line Entries Read lines 1 through 8b and fill in the lines that apply to you. 1040es form Do not complete lines 9 through 12. 1040es form If you are filing a joint return, use the space to the left of line 6 to separately show your taxable income and your spouse's taxable income. 1040es form Payments. 1040es form   Enter any federal income tax withheld on line 7. 1040es form Federal income tax withheld is shown on Form W-2, box 2, or Form 1099, box 4. 1040es form Earned income credit. 1040es form   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. 1040es form Enter “EIC” in the space to the left of line 8a. 1040es form Enter the nontaxable combat pay you elect to include in earned income on line 8b. 1040es form   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862, Information To Claim Earned Income Credit After Disallowance, with your return. 1040es form For details, see the Form 1040EZ Instructions. 1040es form Form 1040A Line Entries Read lines 1 through 27 and fill in the lines that apply to you. 1040es form If you are filing a joint return, use the space to the left of the entry space for line 27 to separately show your taxable income and your spouse's taxable income. 1040es form Do not complete line 28. 1040es form Complete lines 29 through 33 and 36 through 40 if they apply to you. 1040es form However, do not fill in lines 30 and 38a if you want the IRS to figure the credits shown on those lines. 1040es form Also, enter any write-in information that applies to you in the space to the left of line 41. 1040es form Do not complete lines 34, 35, and 42 through 46. 1040es form Payments. 1040es form   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 36. 1040es form Enter any estimated tax payments you made on line 37. 1040es form Credit for child and dependent care expenses. 1040es form   If you can take this credit, as discussed in chapter 32, complete Form 2441, Child and Dependent Care Expenses, and attach it to your return. 1040es form Enter the amount of the credit on line 29. 1040es form The IRS will not figure this credit. 1040es form Credit for the elderly or the disabled. 1040es form   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. 1040es form Enter “CFE” in the space to the left of line 30 and attach Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled, to your paper return. 1040es form On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. 1040es form Complete Part II and Part III, lines 11 and 13, if they apply. 1040es form Earned income credit. 1040es form   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. 1040es form Enter “EIC” to the left of the entry space for line 38a. 1040es form Enter the nontaxable combat pay you elect to include in earned income on line 38b. 1040es form    If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. 1040es form If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013. 1040es form   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. 1040es form For details, see the Form 1040A Instructions. 1040es form Form 1040 Line Entries Read lines 1 through 43 and fill in the lines that apply to you. 1040es form Do not complete line 44. 1040es form If you are filing a joint return, use the space under the words “Adjusted Gross Income” on the front of your return to separately show your taxable income and your spouse's taxable income. 1040es form Read lines 45 through 71. 1040es form Fill in the lines that apply to you, but do not fill in lines 54, 61, and 72. 1040es form Also, do not complete line 55 and lines 73 through 77. 1040es form Do not fill in line 53, box “c,” if you are completing Schedule R (Form 1040A or 1040), or line 64a if you want the IRS to figure the credits shown on those lines. 1040es form Payments. 1040es form   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 62. 1040es form Enter any estimated tax payments you made on line 63. 1040es form Credit for child and dependent care expenses. 1040es form   If you can take this credit, as discussed in chapter 32, complete Form 2441 and attach it to your paper return. 1040es form Enter the amount of the credit on line 48. 1040es form The IRS will not figure this credit. 1040es form Credit for the elderly or the disabled. 1040es form   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. 1040es form Enter “CFE” on the line next to line 53, check box “c,” and attach Schedule R (Form 1040A or 1040) to your paper return. 1040es form On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. 1040es form Complete Part II and Part III, lines 11 and 13, if they apply. 1040es form Earned income credit. 1040es form   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. 1040es form Enter “EIC” on the dotted line next to Form 1040, line 64a. 1040es form Enter the nontaxable combat pay you elect to include in earned income on line 64b. 1040es form   If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. 1040es form If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013. 1040es form   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. 1040es form For details, see the Form 1040 Instructions. 1040es form Prev  Up  Next   Home   More Online Publications
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History of the Office of the Taxpayer Advocate

In Taxpayer Bill of Rights 2, Congress not only established the Office of the Taxpayer Advocate but also described its functions:

  1. To assist taxpayers in resolving problems with the Internal Revenue Service;
  2. To identify areas in which taxpayers have problems in dealings with the Internal Revenue Service;
  3. To the extent possible, propose changes in the administrative practices of the IRS to mitigate those identified problems; and
  4. To identify potential legislative changes which may be appropriate to mitigate such problems.

Read the interesting history of TAS

Page Last Reviewed or Updated: 14-Mar-2014

The 1040es Form

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