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Amend 2008 Tax Return Free

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Amend 2008 Tax Return Free

Amend 2008 tax return free 11. Amend 2008 tax return free   Employer-Provided Educational Assistance Table of Contents Introduction Working condition fringe benefit. Amend 2008 tax return free Introduction If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. Amend 2008 tax return free This means your employer should not include those benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. Amend 2008 tax return free This also means that you do not have to include the benefits on your income tax return. Amend 2008 tax return free You cannot use any of the tax-free education expenses paid for by your employer as the basis for any other deduction or credit, including the American opportunity credit and lifetime learning credit. Amend 2008 tax return free Educational assistance program. Amend 2008 tax return free   To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Amend 2008 tax return free Your employer can tell you whether there is a qualified program where you work. Amend 2008 tax return free Educational assistance benefits. Amend 2008 tax return free   Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. Amend 2008 tax return free Education generally includes any form of instruction or training that improves or develops your capabilities. Amend 2008 tax return free The payments do not have to be for work-related courses or courses that are part of a degree program. Amend 2008 tax return free   Educational assistance benefits do not include payments for the following items. Amend 2008 tax return free Meals, lodging, or transportation. Amend 2008 tax return free Tools or supplies (other than textbooks) that you can keep after completing the course of instruction. Amend 2008 tax return free Courses involving sports, games, or hobbies unless they: Have a reasonable relationship to the business of your employer, or Are required as part of a degree program. Amend 2008 tax return free Benefits over $5,250. Amend 2008 tax return free   If your employer pays more than $5,250 in educational assistance benefits for you during the year, you must generally pay tax on the amount over $5,250. Amend 2008 tax return free Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income. Amend 2008 tax return free Working condition fringe benefit. Amend 2008 tax return free    However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. Amend 2008 tax return free A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. Amend 2008 tax return free For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Amend 2008 tax return free Prev  Up  Next   Home   More Online Publications
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Investigate Before You Invest

What do you want to invest in: stocks, bonds, mutual funds? Do you want to open an IRA or buy an annuity? Does your employer offer a 401K? Remember, every investment involves some degree of risk. Most securities are not insured by the Federal government if they lose money or fail, even if you purchase them through a bank or credit union that offers Federally insured savings accounts. Make sure you have answers to all of these questions before you invest:

  • Define your goals. Ask yourself "Why am I investing money?" Maybe you want to save money to purchase a house or to save for retirement. Maybe you would like to have money to pay for your child's education, or just to have a financial cushion to handle unexpected expenses or a loss of income.
  • How quickly can you get your money back? Stocks, bonds, and shares in mutual funds can usually be sold at any time, but there is no guarantee you will get back all the money you paid for them. Other investments, such as limited partnerships, often restrict your ability to cash out your holdings.
  • What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Also, keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.
  • What type of earnings can you expect? Will you get income in the form of interest, dividends or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
  • How much risk is involved? With any investment, there is always the risk that you won't get your money back or the earnings promised. There is usually a trade-off between risk and reward: the higher the potential return, the greater the risk. The federal government insures bank savings accounts and backs up U.S. Treasury securities (including savings bonds). Other investment options are not protected.
  • Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can help to reduce your risk.
  • Are there any tax advantages to a particular investment? U.S. Savings Bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. For special goals, such as paying for college and retirement, tax-deferred investments are available that let you postpone or even eliminate payment of income taxes.

Compare Investment Vehicles

Not all investment vehicles are created equal or work for your personal financial goals. Some provide steady income and are low risk, but yield small returns on investment; others may provide significant returns, but require a long term investment commitment. There is a wide assortment of investment vehicles available. Some of the most popular include: mutual funds, traditional IRAs, Roth IRAs, savings bonds or bond funds, stocks, and certificates of deposit.

Some investments pay out earnings on a regular (quarterly, monthly, or annual) basis, while others pay out earnings at the end of the investment period or may have age requirements for when you can withdraw your money without a penalty. Make sure your investment income stream matches your investment timeline.

You should also consider the tax ramifications. If you are saving for retirement or for education, consider investments that offer incentives for saving for a particular purpose. Your contributions for some investments are tax deductible, but the earnings are not taxed (e.g. Roth IRA); your contributions to other investments may not be taxed, but the earnings are taxed (e.g. traditional IRA).

You don't have to put all of your money in one investment. Consider diversifying your investment portfolio by placing your money in several investment vehicles. This can protect you from risk; while one of your investments may be performing poorly, another one of your investments can make up for those losses.

Type of Investment What is it? Risk level
Traditional IRA Traditional IRA is a personal savings plan that gives tax advantages for savings for retirement. Investments may include variety of securities. Contributions may be tax-deductible; earnings are not taxed until distributed. Risk levels vary according to the holdings in the IRA
Roth IRA A personal savings plan where earnings that remain in the account are not taxed. Investments may include a variety of securities. Contributions are not tax-deductible. Risk levels vary according to the holding in the IRA
Money Market Funds Mutual funds that invest in short-term bonds. Usually pays better interest rates than a savings account but not as much as a certificate of deposit (CD). Low risk.
Bonds and Bond Funds Also known as fixed-income securities because the income they pay is fixed when the bond is sold. Bonds and bond funds invest in corporate or government debt obligations. Low risk.
Index Funds Invest in a particular market index. An index fund is passively managed and simply mirrors the performance of the designated stock or bond index. Risk level depends on which index the fund uses. A bond index fund involves a lower risk level than an index fund of emerging markets overseas.
Stocks Stocks represent a share of a company As the company's value rises or falls, so does the value of the stock. Medium to high risk.
Mutual funds Invest in a variety of securities, which may include stocks, bonds, and/or money market securities. Costs and objectives vary. Risk levels vary according to the holdings in the mutual fund.

Investing Through Your Employer

Many employers encourage their employees to save for their retirement by establishing 401(k), 403(b), or 457(b) plans. Employees that participate in these programs elect to have a set amount of their income deducted from their paychecks to save for retirement; these amounts are not subject to income taxes. In many cases, your employer will match a portion of the amount of the money that you contribute into your 401(k) account, which is like getting "free" money. If you stop working at a company, remember to take the money from your 401(k) with you. If you "rollover" the total from your old job to an account at your new job, a traditional IRA, you will not have to pay taxes on the money.

The Amend 2008 Tax Return Free

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