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Amendment On Taxes

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Amendment On Taxes

Amendment on taxes Publication 600 - Main Contents Table of Contents Actual Expenses Optional Sales Tax Tables Instructions for the State and Local General Sales Tax Deduction WorksheetWhat if you lived in more than one state? What if you lived in more than one locality? What if your local general sales tax rate changed during 2006? What if you lived in more than one locality in the same state during 2006? Actual Expenses Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2006 if the tax rate was the same as the general sales tax rate. Amendment on taxes However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Amendment on taxes If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Amendment on taxes Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Amendment on taxes Also include any state and local general sales taxes paid for a leased motor vehicle. Amendment on taxes Do not include sales taxes paid on items used in your trade or business. Amendment on taxes To deduct your actual expenses, enter the amount on Schedule A, line 5, and enter “ST” on the dotted line to the left of the line 5 entry space. Amendment on taxes You must keep your actual receipts showing general sales taxes paid to use this method. Amendment on taxes Refund of general sales taxes. Amendment on taxes   If you received a refund of state or local general sales taxes in 2006 for amounts paid in 2006, reduce your actual 2006 state and local general sales taxes by this amount. Amendment on taxes If you received a refund of state or local general sales taxes in 2006 for prior year purchases, do not reduce your 2006 state and local general sales taxes by this amount. Amendment on taxes But if you deducted your actual state and local general sales taxes in the earlier year and the deduction reduced your tax, you may have to include the refund in income on Form 1040, line 21. Amendment on taxes See Recoveries in Pub. Amendment on taxes 525 for details. Amendment on taxes Optional Sales Tax Tables Instead of using your actual expenses, you can use the tables on pages 5 through 7 to figure your state and local general sales tax deduction. Amendment on taxes You may also be able to add the state and local general sales taxes paid on certain specified items. Amendment on taxes To figure your state and local general sales tax deduction using the tables, complete the worksheet below. Amendment on taxes If your filing status is married filing separately, both you and your spouse elect to deduct sales taxes, and your spouse elects to use the optional sales tax tables, you also must use the tables to figure your state and local general sales tax deduction. Amendment on taxes State and Local General Sales Tax Deduction Worksheet (See the instructions that begin on page 3. Amendment on taxes ) Before you begin: See the instructions for line 1 on page 3 if: You lived in more than one state during 2006, or You had any nontaxable income in 2006. Amendment on taxes   1. Amendment on taxes Enter your state general sales taxes from the applicable table on page 5 or 6 (see page 3 of the instructions) 1. Amendment on taxes $     Next. Amendment on taxes If, for all of 2006, you lived only in Connecticut, the District of Columbia, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Virginia, or West Virginia, skip lines 2 through 5, enter -0- on line 6, and go to line 7. Amendment on taxes Otherwise, go to line 2       2. Amendment on taxes Did you live in Alaska, Arizona, Arkansas (Texarkana only), California (Los Angeles County only), Colorado, Georgia, Illinois, Louisiana, New York State, or North Carolina in 2006?         No. Amendment on taxes Enter -0-                   Yes. Amendment on taxes Enter your local general sales taxes from the applicable table on page 7 (see page 3 of the instructions)     2. Amendment on taxes $       3. Amendment on taxes Did your locality impose a local general sales tax in 2006? Residents of California, Nevada, and Texarkana, Arkansas, see page 3 of the instructions             No. Amendment on taxes Skip lines 3 through 5, enter -0- on line 6, and go to line 7             Yes. Amendment on taxes Enter your local general sales tax rate, but omit the percentage sign. Amendment on taxes For example, if your local general sales tax rate was 2. Amendment on taxes 5%, enter 2. Amendment on taxes 5. Amendment on taxes If your local general sales tax rate changed or you lived in more than one locality in the same state during 2006, see page 3 of the instructions. Amendment on taxes (If you do not know your local general sales tax rate, contact your local government. Amendment on taxes ) 3. Amendment on taxes . Amendment on taxes       4. Amendment on taxes Did you enter -0- on line 2 above?             No. Amendment on taxes Skip lines 4 and 5 and go to line 6             Yes. Amendment on taxes Enter your state general sales tax rate (shown in the table heading for your state), but omit the percentage sign. Amendment on taxes For example, if your state general sales tax rate is 6%, enter 6. Amendment on taxes 0 4. Amendment on taxes . Amendment on taxes       5. Amendment on taxes Divide line 3 by line 4. Amendment on taxes Enter the result as a decimal (rounded to at least three places) 5. Amendment on taxes . Amendment on taxes       6. Amendment on taxes Did you enter -0- on line 2 above?             No. Amendment on taxes Multiply line 2 by line 3   6. Amendment on taxes $     Yes. Amendment on taxes Multiply line 1 by line 5. Amendment on taxes If you lived in more than one locality in the same state during 2006, see page 4 of the instructions           7. Amendment on taxes Enter your state and local general sales taxes paid on specified items, if any (see page 4 of the instructions) 7. Amendment on taxes $   8. Amendment on taxes Deduction for general sales taxes. Amendment on taxes Add lines 1, 6, and 7. Amendment on taxes Enter the result here and the total from all your state and local general sales tax deduction worksheets, if you completed more than one, on Schedule A, line 5. Amendment on taxes Be sure to enter “ST” on the dotted line to the left of the entry space 8. Amendment on taxes $     Instructions for the State and Local General Sales Tax Deduction Worksheet Line 1. Amendment on taxes    If you lived in the same state for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional state sales tax table for your state on page 5 or 6. Amendment on taxes Read down the “At least-But less than” columns for your state and find the line that includes your 2006 income. Amendment on taxes If married filing separately, do not include your spouse's income. Amendment on taxes Your 2006 income is the amount shown on your Form 1040, line 38, plus any nontaxable items, such as the following. Amendment on taxes Tax-exempt interest. Amendment on taxes Veterans' benefits. Amendment on taxes Nontaxable combat pay. Amendment on taxes Workers' compensation. Amendment on taxes Nontaxable part of social security and railroad retirement benefits. Amendment on taxes Nontaxable part of IRA, pension, or annuity distributions. Amendment on taxes Do not include rollovers. Amendment on taxes Public assistance payments. Amendment on taxes The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Amendment on taxes Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Amendment on taxes What if you lived in more than one state?    If you lived in more than one state during 2006, look up the table amount for each state using the above rules. Amendment on taxes If there is no table for your state, the table amount is considered to be zero. Amendment on taxes Multiply the table amount for each state you lived in by a fraction. Amendment on taxes The numerator of the fraction is the number of days you lived in the state during 2006 and the denominator is the total number of days in the year (365). Amendment on taxes Enter the total of the prorated table amounts for each state on line 1. Amendment on taxes However, if you also lived in a locality during 2006 that imposed a local general sales tax, do not enter the total on line 1. Amendment on taxes Instead, complete a separate worksheet for each state you lived in and enter the prorated amount for that state on line 1. Amendment on taxes Example. Amendment on taxes You lived in State A from January 1 through August 31, 2006 (243 days), and in State B from September 1 through December 31, 2006 (122 days). Amendment on taxes The table amount for State A is $500. Amendment on taxes The table amount for State B is $400. Amendment on taxes You would figure your state general sales tax as follows. Amendment on taxes State A: $500 x 243/365 = $333   State B: $400 x 122/365 = 134   Total = $467   If none of the localities in which you lived during 2006 imposed a local general sales tax, enter $467 on line 1 of your worksheet. Amendment on taxes Otherwise, complete a separate worksheet for State A and State B. Amendment on taxes Enter $333 on line 1 of the State A worksheet and $134 on line 1 of the State B worksheet. Amendment on taxes Line 2. Amendment on taxes   If you checked the “No” box, enter -0- on line 2, and go to line 3. Amendment on taxes If you checked the “Yes” box and lived in the same locality for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional local sales tax table for your locality on page 7. Amendment on taxes Read down the “At least-But less than” columns for your locality and find the line that includes your 2006 income. Amendment on taxes See the line 1 instructions on this page to figure your 2006 income. Amendment on taxes The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Amendment on taxes Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Amendment on taxes What if you lived in more than one locality?   If you lived in more than one locality during 2006, look up the table amount for each locality using the above rules. Amendment on taxes If there is no table for your locality, the table amount is considered to be zero. Amendment on taxes Multiply the table amount for each locality you lived in by a fraction. Amendment on taxes The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Amendment on taxes If you lived in more than one locality in the same state and the local general sales tax rate was the same for each locality, enter the total of the prorated table amounts for each locality in that state on line 2. Amendment on taxes Otherwise, complete a separate worksheet for lines 2 through 6 for each locality and enter each prorated table amount on line 2 of the applicable worksheet. Amendment on taxes Example. Amendment on taxes You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Amendment on taxes The table amount for Locality 1 is $100. Amendment on taxes The table amount for Locality 2 is $150. Amendment on taxes You would figure the amount to enter on line 2 as follows. Amendment on taxes Note that this amount may not equal your local sales tax deduction, which is figured on line 6 of the worksheet. Amendment on taxes Locality 1: $100 x 243/365 = $67   Locality 2: $150 x 122/365 = 50   Total = $117   Line 3. Amendment on taxes   If you lived in California, check the “No” box if your combined state and local general sales tax rate is 7. Amendment on taxes 25%. Amendment on taxes Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 7. Amendment on taxes 25%. Amendment on taxes   If you lived in Nevada, check the “No” box if your combined state and local general sales tax rate is 6. Amendment on taxes 5%. Amendment on taxes Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 6. Amendment on taxes 5%. Amendment on taxes   If you lived in Texarkana, Arkansas, check the “Yes” box and enter “4. Amendment on taxes 0” on line 3. Amendment on taxes Your local general sales tax rate of 4. Amendment on taxes 0% includes the additional 1. Amendment on taxes 0% Arkansas state sales tax rate for Texarkana and the 1. Amendment on taxes 5% sales tax rate for Miller County. Amendment on taxes What if your local general sales tax rate changed during 2006?    If you checked the “Yes” box and your local general sales tax rate changed during 2006, figure the rate to enter on line 3 as follows. Amendment on taxes Multiply each tax rate for the period it was in effect by a fraction. Amendment on taxes The numerator of the fraction is the number of days the rate was in effect during 2006 and the denominator is the total number of days in the year (365). Amendment on taxes Enter the total of the prorated tax rates on line 3. Amendment on taxes Example. Amendment on taxes Locality 1 imposed a 1% local general sales tax from January 1 through September 30, 2006 (273 days). Amendment on taxes The rate increased to 1. Amendment on taxes 75% for the period from October 1 through December 31, 2006 (92 days). Amendment on taxes You would enter “1. Amendment on taxes 189” on line 3, figured as follows. Amendment on taxes January 1 - September 30: 1. Amendment on taxes 00 x 273/365 = 0. Amendment on taxes 748   October 1 - December 31: 1. Amendment on taxes 75 x 92/365 = 0. Amendment on taxes 441   Total = 1. Amendment on taxes 189   What if you lived in more than one locality in the same state during 2006?    Complete a separate worksheet for lines 2 through 6 for each locality in your state if you lived in more than one locality in the same state during 2006 and either of the following applies. Amendment on taxes Each locality did not have the same local general sales tax rate. Amendment on taxes You lived in Texarkana, AR, or Los Angeles County, CA. Amendment on taxes   To figure the amount to enter on line 3 of the worksheet for each locality in which you lived (except a locality for which you used the table on page 7 to figure your local general sales tax deduction), multiply the local general sales tax rate by a fraction. Amendment on taxes The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Amendment on taxes Example. Amendment on taxes You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Amendment on taxes The local general sales tax rate for Locality 1 is 1%. Amendment on taxes The rate for Locality 2 is 1. Amendment on taxes 75%. Amendment on taxes You would enter “0. Amendment on taxes 666” on line 3 for the Locality 1 worksheet and “0. Amendment on taxes 585” for the Locality 2 worksheet, figured as follows. Amendment on taxes Locality 1: 1. Amendment on taxes 00 x 243/365 = 0. Amendment on taxes 666   Locality 2: 1. Amendment on taxes 75 x 122/365 = 0. Amendment on taxes 585   Line 6. Amendment on taxes   If you lived in more than one locality in the same state during 2006, you should have completed line 1 only on the first worksheet for that state and separate worksheets for lines 2 through 6 for any other locality within that state in which you lived during 2006. Amendment on taxes If you checked the “Yes” box on line 6 of any of those worksheets, multiply line 5 of that worksheet by the amount that you entered on line 1 for that state on the first worksheet. Amendment on taxes Line 7. Amendment on taxes    Enter on line 7 any state and local general sales taxes paid on the following specified items. Amendment on taxes If you are completing more than one worksheet, include the total for line 7 on only one of the worksheets. Amendment on taxes A motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle). Amendment on taxes Also include any state and local general sales taxes paid for a leased motor vehicle. Amendment on taxes If the state sales tax rate on these items is higher than the general sales tax rate, only include the amount of tax you would have paid at the general sales tax rate. Amendment on taxes An aircraft or boat, if the tax rate was the same as the general sales tax rate. Amendment on taxes A home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home, but only if the tax rate was the same as the general sales tax rate and any of the following applies. Amendment on taxes Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation. Amendment on taxes You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly. Amendment on taxes Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. Amendment on taxes The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. Amendment on taxes In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly. Amendment on taxes   Do not include sales taxes paid on items used in your trade or business. Amendment on taxes If you received a refund of state or local general sales taxes in 2006, see Refund of general sales taxes on page 1. Amendment on taxes Prev  Up  Next   Home   More Online Publications
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Some IRS Assistance and Taxpayer Services Shift to Automated Resources

Given available resources and shifting taxpayer demands, the IRS will be making a number of taxpayer service changes for the 2014 filing season.

The changes, which were made following input from stakeholders in the tax community, reflect the need for increased use of automated self-service options. With limited resources to support person-to-person services on the phone or at Taxpayer Assistance Centers, the IRS is emphasizing services, such as those found on IRS.gov, to help meet a number of taxpayer needs. This approach will free up IRS assistors on the phone or in person to help with issues that cannot be resolved through other avenues, such as issues involving identity theft.

Each year, the IRS balances anticipated customer service needs against available resources to determine the right mix of technology, employees and IRS partner-provided assistance  to meet these needs in the most effective and efficient way. The changes for filing season 2014 affect these areas:

  • Tax Return Preparation
  • Transcript delivery
  • Tax Law Assistance
  • Tax Refund Inquiries
  • Employer Identification Number
  • Practitioner Priority Service

Taxpayers should find these automated services easy to use and convenient. Many are available 24 hours and seven days a week.

Tax Return Preparation

Due to resource constraints, fewer tax returns have been prepared at IRS walk-in offices in recent years. For several years, return preparation has only been available in a limited format – only offered at some IRS offices and not every day of the week at some locations. In addition, taxpayers had to have income below the Earned Income Tax Credit thresholds to receive this assistance.

With the growth in electronic tax preparation and continued resource limitations, the IRS will be directing qualified taxpayers during the upcoming filing season to more than 13,000 volunteer partner sites across the country rather than limited services at the IRS’s 250 walk-in offices. The IRS will refer taxpayers who visit the walk-in offices for tax preparation to the nearest volunteer site for tax return preparation.

Almost everyone can use IRS Free File to prepare and e-file their own returns for free. People who made $58,000 or less last year – and that’s 70 percent of taxpayers – can use Free File software. Fourteen companies make their brand-name tax software products available for free. For people who earned more, there’s Free File Fillable Forms, the electronic version of IRS paper forms. It’s best for people comfortable preparing their own returns. Free File is available only at IRS.gov/freefile.

New “Get Transcript” Service

Early in 2014, a new online request option called “Get Transcript” on IRS.gov will allow individual taxpayers with an SSN to instantly view and print a copy of their tax transcripts. With Get Transcript, taxpayers will save both time and effort. When the new service is available, transcript requests will generally be referred to the online tool. Taxpayers will be able to use the tool to authenticate, view and print copies of their transcript in one session. Taxpayers will still also be able to request that a transcript be mailed to their address of record by using the existing online tool or sending in Form 4506T. A specific date when Get Transcript will be available will be announced early in 2014.

The tool will be available for five types of transcripts: tax account, tax return, record of account, wage and income, and verification of non-filing.

Tax Law Assistance

The majority of tax law questions the IRS receives each year are about basic tax law issues. This includes questions pertaining to Forms 1040A, 1040 EZ and related items on Form 1040 such as filing status, dependents, exemptions and taxable income. During each filing season (January to mid-April), the IRS will continue to answer these basic tax law questions.

A small percentage of taxpayers seek help with other, more detailed tax law questions that frequently take more time to address. Beginning with the 2014 filing season, the IRS will refer taxpayers with these more complex questions to a number of other resources available on IRS.gov, IRS tax publications and the software packages taxpayers may already be using. This step reflects the continuing adoption of tax preparation software. More than 90 percent of all taxpayers use of tax return preparation software, either on their own or through their tax professional, and the tax law help is included as part of the software.

Most tax law questions are asked during filing season. To focus IRS resources on the filing season, outside of the January – April time frame the IRS will refer all taxpayers with tax law questions to the resources listed above.  

Tax Refund Inquiries

Traditionally, the most common question the IRS receives is about when people can expect to see their refund. In recent years, the IRS has issued more than 90 percent of refunds in less than 21 days. With the continued growth of the internet and mobile apps, the IRS will direct all refund inquiries during the first 21 days after a taxpayer files electronically to the “Where’s My Refund?” tool available in English and Spanish through the IRS2Go phone app, IRS.gov and the automated telephone service. IRS customer service representatives will only be able to research the status of a refund if it’s been 21 days or more since the return was filed electronically or more than six weeks since a paper return was mailed to the IRS or if the Where’s My Refund? tool directs them to contact the IRS.

Practitioner Priority Service

The Practitioner Priority Service (PPS) provides tax professionals a dedicated channel to resolve taxpayer client account issues. Over the past few years, a growing number of customers who were not tax professionals used this service. Beginning in January, the IRS will limit PPS to tax professionals and requests related to resolving client related issues. All other requests will be referred to other appropriate resources for service. This change is expected to help the IRS provide better service to more tax professionals and help free up other resources for customer service.

Employer Identification Number

The IRS’s EIN Online Assistant continues to be a success with more than four million requests processed per year electronically compared to just over 588,000 requests made for an EIN via our manual telephone option. Beginning with the 2014 filing season, the IRS will refer all EIN requests to the EIN Online Assistant and refer only those with questions about a previously assigned EIN to a live IRS representative

Any savings realized from these initiatives will be reinvested into improving service on the phone and at our walk-in sites.

Other Resources Available for Free Help

Page Last Reviewed or Updated: 03-Feb-2014

The Amendment On Taxes

Amendment on taxes 4. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes Category 1. Amendment on taxes Category 2. Amendment on taxes Category 3. Amendment on taxes What's New for 2013 Standard mileage rate. Amendment on taxes  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. Amendment on taxes 5 cents. Amendment on taxes See Truck and Car Expenses , later. Amendment on taxes Simplified method for business use of home deduction. Amendment on taxes  The IRS now provides a simplified method to determine your expenses for business use of your home. Amendment on taxes For more information, see Schedule C (Form 1040), Part II, and its instructions. Amendment on taxes Introduction You can generally deduct the current costs of operating your farm. Amendment on taxes Current costs are expenses you do not have to capitalize or include in inventory costs. Amendment on taxes However, your deduction for the cost of livestock feed and certain other supplies may be limited. Amendment on taxes If you have an operating loss, you may not be able to deduct all of it. Amendment on taxes 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. Amendment on taxes Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Amendment on taxes “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Amendment on taxes Schedule F, Part II, lists some common farm expenses that are typically deductible. Amendment on taxes This chapter discusses many of these expenses, as well as others not listed on Schedule F. Amendment on taxes Reimbursed expenses. Amendment on taxes   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Amendment on taxes If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Amendment on taxes See Refund or reimbursement under Income From Other Sources in chapter 3. Amendment on taxes Personal and business expenses. Amendment on taxes   Some expenses you pay during the tax year may be part personal and part business. Amendment on taxes These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Amendment on taxes   You must allocate these mixed expenses between their business and personal parts. Amendment on taxes Generally, the personal part of these expenses is not deductible. Amendment on taxes The business portion of the expenses is deductible on Schedule F. Amendment on taxes Example. Amendment on taxes You paid $1,500 for electricity during the tax year. Amendment on taxes You used 1/3 of the electricity for personal purposes and 2/3 for farming. Amendment on taxes Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Amendment on taxes Reasonable allocation. Amendment on taxes   It is not always easy to determine the business and nonbusiness parts of an expense. Amendment on taxes There is no method of allocation that applies to all mixed expenses. Amendment on taxes Any reasonable allocation is acceptable. Amendment on taxes What is reasonable depends on the circumstances in each case. Amendment on taxes Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Amendment on taxes 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. Amendment on taxes Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Amendment on taxes 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. Amendment on taxes Poultry bought for resale and not resold during the year. Amendment on taxes Deduction limit. Amendment on taxes   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). Amendment on taxes This limit does not apply if you meet one of the exceptions described later. Amendment on taxes See Chapter 2 for a discussion of the cash method of accounting. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Amendment on taxes Example. Amendment on taxes You may not qualify for the exception described next. Amendment on taxes During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Amendment on taxes Your total prepaid farm supplies expense for 2013 is $5,500. Amendment on taxes Your other deductible farm expenses totaled $10,000 for 2013. Amendment on taxes Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Amendment on taxes 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. Amendment on taxes Exceptions. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes   You are a farm-related taxpayer if any of the following tests apply. Amendment on taxes Your main home is on a farm. Amendment on taxes Your principal business is farming. Amendment on taxes A member of your family meets (1) or (2). Amendment on taxes 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. Amendment on taxes    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. Amendment on taxes 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. Amendment on taxes The payment is for the purchase of feed rather than a deposit. Amendment on taxes The prepayment has a business purpose and is not merely for tax avoidance. Amendment on taxes Deducting the prepayment does not result in a material distortion of your income. Amendment on taxes If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Amendment on taxes If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Amendment on taxes This rule does not apply to the purchase of commodity futures contracts. Amendment on taxes Payment for the purchase of feed. Amendment on taxes   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Amendment on taxes 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. Amendment on taxes   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Amendment on taxes The absence of specific quantity terms. Amendment on taxes The right to a refund of any unapplied payment credit at the end of the contract. Amendment on taxes The seller's treatment of the payment as a deposit. Amendment on taxes The right to substitute other goods or products for those specified in the contract. Amendment on taxes   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. Amendment on taxes Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Amendment on taxes Business purpose. Amendment on taxes   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. Amendment on taxes The following are some examples of business benefits. Amendment on taxes Fixing maximum prices and securing an assured feed supply. Amendment on taxes Securing preferential treatment in anticipation of a feed shortage. Amendment on taxes   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. Amendment on taxes No material distortion of income. Amendment on taxes   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Amendment on taxes Your customary business practice in conducting your livestock operations. Amendment on taxes The expense in relation to past purchases. Amendment on taxes The time of year you made the purchase. Amendment on taxes The expense in relation to your income for the year. Amendment on taxes 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. Amendment on taxes You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Amendment on taxes The cost of boarding farm labor is a deductible labor cost. Amendment on taxes Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Amendment on taxes 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. Amendment on taxes See chapter 13 for more information on employment taxes. Amendment on taxes 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. Amendment on taxes See Taxes , later. Amendment on taxes Property for services. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes   Treat the wages deducted as an amount received for the property. Amendment on taxes 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. Amendment on taxes Any gain or loss has the same character the exchanged property had in your hands. Amendment on taxes For more information, see chapter 8. Amendment on taxes Child as an employee. Amendment on taxes   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. Amendment on taxes Include these wages in the child's income. Amendment on taxes The child may have to file an income tax return. Amendment on taxes These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Amendment on taxes For more information, see Family Employees in chapter 13. Amendment on taxes    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Amendment on taxes   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. Amendment on taxes The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Amendment on taxes Spouse as an employee. Amendment on taxes   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. Amendment on taxes Wages you pay to your spouse are subject to social security and Medicare taxes. Amendment on taxes For more information, see Family Employees in chapter 13. Amendment on taxes Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Amendment on taxes However, those wages may be subject to the employment taxes discussed in chapter 13. Amendment on taxes Household workers. Amendment on taxes   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. Amendment on taxes Construction labor. Amendment on taxes   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Amendment on taxes These wages are part of the cost of the building or other improvement. Amendment on taxes You must capitalize them. Amendment on taxes Maintaining your home. Amendment on taxes   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. Amendment on taxes For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Amendment on taxes The employee devotes the remaining time to work on your farm. Amendment on taxes You cannot deduct 5% of the wages and employment taxes you pay for that employee. Amendment on taxes 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). Amendment on taxes Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes For example, if you repair the barn roof, the cost is deductible. Amendment on taxes But if you replace the roof, it is a capital expense. Amendment on taxes For more information, see Capital Expenses , later. Amendment on taxes Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Amendment on taxes Cash method. Amendment on taxes   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Amendment on taxes You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Amendment on taxes You can, however, deduct the interest when you start making payments on the new loan. Amendment on taxes For more information, see Cash Method in chapter 2. Amendment on taxes Prepaid interest. Amendment on taxes   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Amendment on taxes Interest paid in advance may be deducted only in the tax year in which it is due. Amendment on taxes Accrual method. Amendment on taxes   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Amendment on taxes 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. Amendment on taxes For more information, see Accrual Method in chapter 2. Amendment on taxes Allocation of interest. Amendment on taxes   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Amendment on taxes Allocate the interest to the following categories. Amendment on taxes Trade or business interest. Amendment on taxes Passive activity interest. Amendment on taxes Investment interest. Amendment on taxes Portfolio interest. Amendment on taxes Personal interest. Amendment on taxes   You generally allocate interest on a loan the same way you allocate the loan proceeds. Amendment on taxes You allocate loan proceeds by tracing disbursements to specific uses. Amendment on taxes The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Amendment on taxes Secured loan. Amendment on taxes   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Amendment on taxes Example. Amendment on taxes You secure a loan with property used in your farming business. Amendment on taxes You use the loan proceeds to buy a car for personal use. Amendment on taxes 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. Amendment on taxes If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Amendment on taxes The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Amendment on taxes However, you can choose to treat the loan as not secured by your home. Amendment on taxes For more information, see Publication 936. Amendment on taxes Allocation period. Amendment on taxes   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. Amendment on taxes The date the loan is repaid. Amendment on taxes The date the loan is reallocated to another use. Amendment on taxes More information. Amendment on taxes   For more information on interest, see chapter 4 in Publication 535. Amendment on taxes Breeding Fees You can deduct breeding fees as a farm business expense. Amendment on taxes 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. Amendment on taxes For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Amendment on taxes 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. Amendment on taxes You can also deduct the cost of applying these materials in the year you pay or incur it. Amendment on taxes However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Amendment on taxes 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. Amendment on taxes However, you can choose to deduct these expenses in the year paid or incurred. Amendment on taxes If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Amendment on taxes 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. Amendment on taxes Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Amendment on taxes It does not include land you have never used previously for producing crops or sustaining livestock. Amendment on taxes You cannot deduct initial land preparation costs. Amendment on taxes (See Capital Expenses , later. Amendment on taxes ) Include government payments you receive for lime or fertilizer in income. Amendment on taxes See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes For information on employment taxes, see chapter 13. Amendment on taxes Allocation of taxes. Amendment on taxes   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. Amendment on taxes You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Amendment on taxes To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Amendment on taxes The allocation can be done from the assessed valuations. Amendment on taxes If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Amendment on taxes State and local general sales taxes. Amendment on taxes   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Amendment on taxes 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. Amendment on taxes Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Amendment on taxes State and federal income taxes. Amendment on taxes   Individuals cannot deduct state and federal income taxes as farm business expenses. Amendment on taxes Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Amendment on taxes However, you cannot deduct federal income tax. Amendment on taxes Highway use tax. Amendment on taxes   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Amendment on taxes 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. Amendment on taxes Self-employment tax deduction. Amendment on taxes   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Amendment on taxes For more information, see chapter 12. Amendment on taxes Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Amendment on taxes This includes premiums you pay for the following types of insurance. Amendment on taxes Fire, storm, crop, theft, liability, and other insurance on farm business assets. Amendment on taxes Health and accident insurance on your farm employees. Amendment on taxes 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. Amendment on taxes Business interruption insurance. Amendment on taxes State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Amendment on taxes Insurance to secure a loan. Amendment on taxes   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. Amendment on taxes In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amendment on taxes Advance premiums. Amendment on taxes   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Amendment on taxes Example. Amendment on taxes On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Amendment on taxes The policy will cover a period of 3 years beginning on July 1, 2013. Amendment on taxes Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Amendment on taxes Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Amendment on taxes In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Amendment on taxes Deduct the remaining $500 in 2016. Amendment on taxes 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. Amendment on taxes Business interruption insurance. Amendment on taxes   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Amendment on taxes This insurance pays for lost profits if your business is shut down due to a fire or other cause. Amendment on taxes Report any proceeds in full on Schedule F, Part I. Amendment on taxes Self-employed health insurance deduction. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Amendment on taxes   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. Amendment on taxes   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Amendment on taxes Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Amendment on taxes   For more information, see Deductible Premiums in Publication 535, chapter 6. Amendment on taxes Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Amendment on taxes However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Amendment on taxes Advance payments. Amendment on taxes   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Amendment on taxes Farm home. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Amendment on taxes Conditional sales contract. Amendment on taxes   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amendment on taxes Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amendment on taxes No single test, or special combination of tests, always applies. Amendment on taxes However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amendment on taxes The agreement applies part of each payment toward an equity interest you will receive. Amendment on taxes You get title to the property after you make a stated amount of required payments. Amendment on taxes 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. Amendment on taxes You pay much more than the current fair rental value of the property. Amendment on taxes 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. Amendment on taxes Determine this value when you make the agreement. Amendment on taxes You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amendment on taxes The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Amendment on taxes Example. Amendment on taxes You lease new farm equipment from a dealer who both sells and leases. Amendment on taxes The agreement includes an option to purchase the equipment for a specified price. Amendment on taxes The lease payments and the specified option price equal the sales price of the equipment plus interest. Amendment on taxes Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Amendment on taxes For federal income tax purposes, the agreement is a conditional sales contract. Amendment on taxes You cannot deduct any of the lease payments as rent. Amendment on taxes You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Amendment on taxes Motor vehicle leases. Amendment on taxes   Special rules apply to lease agreements that have a terminal rental adjustment clause. Amendment on taxes 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. Amendment on taxes If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Amendment on taxes For more information, see Internal Revenue Code (IRC) section 7701(h). Amendment on taxes Leveraged leases. Amendment on taxes   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Amendment on taxes 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. Amendment on taxes irs. Amendment on taxes gov/pub/irs-irbs/irb01-19. Amendment on taxes pdf. Amendment on taxes 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. Amendment on taxes You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Amendment on taxes 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. Amendment on taxes Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes You use it exclusively and regularly for the administrative or management activities of your trade or business. Amendment on taxes You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amendment on taxes If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Amendment on taxes The IRS now provides a simplified method to determine your expenses for business use of your home. Amendment on taxes For more information, see Schedule C (Form 1040), Part II, and its instructions. Amendment on taxes Deduction limit. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes   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. Amendment on taxes 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). Amendment on taxes Farm expenses other than expenses that relate to the use of your home. Amendment on taxes If you are self-employed, do not include your deduction for half of your self-employment tax. Amendment on taxes   Deductions over the current year's limit can be carried over to your next tax year. Amendment on taxes They are subject to the deduction limit for the next tax year. Amendment on taxes More information. Amendment on taxes   See Publication 587 for more information on deducting expenses for the business use of your home. Amendment on taxes Telephone expense. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes Cell phone charges for calls relating to your farm business are deductible. Amendment on taxes 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. Amendment on taxes Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Amendment on taxes Only expenses for business use are deductible. Amendment on taxes These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Amendment on taxes Standard mileage rate. Amendment on taxes   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Amendment on taxes The standard mileage rate for each mile of business use is 56. Amendment on taxes 5 cents in 2013. Amendment on taxes 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. Amendment on taxes   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Amendment on taxes 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. Amendment on taxes Example. Amendment on taxes Maureen owns a car and four pickup trucks that are used in her farm business. Amendment on taxes Her farm employees use the trucks and she uses the car for business. Amendment on taxes Maureen cannot use the standard mileage rate for the car or the trucks. Amendment on taxes This is because all five vehicles are used in Maureen's farm business at the same time. Amendment on taxes She must use actual expenses for all vehicles. Amendment on taxes Business use percentage. Amendment on taxes   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. Amendment on taxes You choose this method of substantiating business use the first year the vehicle is placed in service. Amendment on taxes Once you make this choice, you may not change to another method later. Amendment on taxes The following are uses directly connected with the business of farming. Amendment on taxes Cultivating land. Amendment on taxes Raising or harvesting any agricultural or horticultural commodity. Amendment on taxes Raising, shearing, feeding, caring for, training, and managing animals. Amendment on taxes Driving to the feed or supply store. Amendment on taxes   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Amendment on taxes See Recordkeeping requirements under Travel Expenses , below. Amendment on taxes More information. Amendment on taxes   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Amendment on taxes 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. Amendment on taxes Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Amendment on taxes You cannot deduct lavish or extravagant expenses. Amendment on taxes Usually, the location of your farm business is considered your home for tax purposes. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes The following are some types of deductible travel expenses. Amendment on taxes 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. Amendment on taxes Meals. Amendment on taxes   You ordinarily can deduct only 50% of your business-related meals expenses. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes For information on entertainment expenses, see Publication 463, chapter 2. Amendment on taxes   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Amendment on taxes You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Amendment on taxes    Recordkeeping requirements. Amendment on taxes You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Amendment on taxes Estimates or approximations do not qualify as proof of an expense. Amendment on taxes   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. Amendment on taxes Generally, it is best to record the expense and get documentation of it at the time you pay it. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes More information. Amendment on taxes   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Amendment on taxes Reimbursements to employees. Amendment on taxes   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Amendment on taxes Employees may be reimbursed under an accountable or nonaccountable plan. Amendment on taxes Under an accountable plan, the employee must provide evidence of expenses. Amendment on taxes Under a nonaccountable plan, no evidence of expenses is required. Amendment on taxes If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Amendment on taxes If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Amendment on taxes For more information, see Publication 535, chapter 11. Amendment on taxes Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Amendment on taxes 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. Amendment on taxes Do not take a separate deduction for the penalty. Amendment on taxes Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Amendment on taxes These costs include repairs, utilities, insurance, and depreciation. Amendment on taxes The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Amendment on taxes 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. Amendment on taxes You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Amendment on taxes However, see Chickens, seeds, and young plants , below. Amendment on taxes Example. Amendment on taxes You use the cash method of accounting. Amendment on taxes In 2013, you buy 50 steers you will sell in 2014. Amendment on taxes You cannot deduct the cost of the steers on your 2013 tax return. Amendment on taxes You deduct their cost on your 2014 Schedule F, Part I. Amendment on taxes Chickens, seeds, and young plants. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Amendment on taxes   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Amendment on taxes You cannot also deduct the cost from the selling price. Amendment on taxes   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Amendment on taxes Deduct the cost of these seeds and plants through depletion allowances. Amendment on taxes For more information, see Depletion in chapter 7. Amendment on taxes   The cost of chickens and plants used as food for your family is never deductible. Amendment on taxes   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Amendment on taxes These rules are discussed in chapter 6. Amendment on taxes Example. Amendment on taxes You use the cash method of accounting. Amendment on taxes In 2013, you buy 500 baby chicks to raise for resale in 2014. Amendment on taxes You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Amendment on taxes 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. Amendment on taxes Election to use crop method. Amendment on taxes   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Amendment on taxes You must get IRS approval to use the crop method. Amendment on taxes If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Amendment on taxes For more information, see Crop method under Special Methods of Accounting in chapter 2. Amendment on taxes Choosing a method. Amendment on taxes   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. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes For more information, see Change in Accounting Method in chapter 2. Amendment on taxes Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Amendment on taxes 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. Amendment on taxes Accounting fees. Amendment on taxes Advertising. Amendment on taxes Business travel and meals. Amendment on taxes Commissions. Amendment on taxes Consultant fees. Amendment on taxes Crop scouting expenses. Amendment on taxes Dues to cooperatives. Amendment on taxes Educational expenses (to maintain and improve farming skills). Amendment on taxes Farm-related attorney fees. Amendment on taxes Farm magazines. Amendment on taxes Ginning. Amendment on taxes Insect sprays and dusts. Amendment on taxes Litter and bedding. Amendment on taxes Livestock fees. Amendment on taxes Marketing fees. Amendment on taxes Milk assessment. Amendment on taxes Recordkeeping expenses. Amendment on taxes Service charges. Amendment on taxes Small tools expected to last one year or less. Amendment on taxes Stamps and stationery. Amendment on taxes Subscriptions to professional, technical, and trade journals that deal with farming. Amendment on taxes Tying material and containers. Amendment on taxes Loan expenses. Amendment on taxes   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. Amendment on taxes Tax preparation fees. Amendment on taxes   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. Amendment on taxes You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amendment on taxes   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Amendment on taxes Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Amendment on taxes Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Amendment on taxes Income from cooperatives. Amendment on taxes   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. Amendment on taxes This deduction amount is reported on Form 1099-PATR, box 6. Amendment on taxes 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. Amendment on taxes More information. Amendment on taxes   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Amendment on taxes 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. Amendment on taxes You include the expense in the basis of the asset. Amendment on taxes Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Amendment on taxes See chapters 2  and 6. Amendment on taxes Capital expenses are generally not deductible, but they may be depreciable. Amendment on taxes However, you can elect to deduct certain capital expenses, such as the following. Amendment on taxes The cost of fertilizer, lime, etc. Amendment on taxes (See Fertilizer and Lime under Deductible Expenses , earlier. Amendment on taxes ) Soil and water conservation expenses. Amendment on taxes (See chapter 5. Amendment on taxes ) The cost of property that qualifies for a deduction under section 179. Amendment on taxes (See chapter 7. Amendment on taxes ) Business start-up costs. Amendment on taxes (See Business start-up and organizational costs , later. Amendment on taxes ) Forestation and reforestation costs. Amendment on taxes (See Forestation and reforestation costs , later. Amendment on taxes ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Amendment on taxes Land and buildings. Amendment on taxes Additions, alterations, and improvements to buildings, etc. Amendment on taxes Cars and trucks. Amendment on taxes Equipment and machinery. Amendment on taxes Fences. Amendment on taxes Draft, breeding, sport, and dairy livestock. Amendment on taxes Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Amendment on taxes Water wells, including drilling and equipping costs. Amendment on taxes 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. Amendment on taxes Business start-up and organizational costs. Amendment on taxes   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. Amendment on taxes The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amendment on taxes Any remaining costs must be amortized. Amendment on taxes See chapter 7. Amendment on taxes   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. Amendment on taxes 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). Amendment on taxes Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amendment on taxes 9100-2” at the top of the amended return. Amendment on taxes File the amended return at the same address you filed the original return. Amendment on taxes The election applies when figuring taxable income for the current tax year and all subsequent years. Amendment on taxes   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. Amendment on taxes For more information about start-up and organizational costs, see chapter 7. Amendment on taxes Crop production expenses. Amendment on taxes   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Amendment on taxes 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. Amendment on taxes For more information, see Uniform Capitalization Rules in chapter 6. Amendment on taxes Timber. Amendment on taxes   Capitalize the cost of acquiring timber. Amendment on taxes Do not include the cost of land in the cost of the timber. Amendment on taxes You must generally capitalize direct costs incurred in reforestation. Amendment on taxes However, you can elect to deduct some forestation and reforestation costs. Amendment on taxes See Forestation and reforestation costs next. Amendment on taxes Reforestation costs include the following. Amendment on taxes Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Amendment on taxes The cost of seed or seedlings. Amendment on taxes Labor and tool expenses. Amendment on taxes Depreciation on equipment used in planting or seeding. Amendment on taxes Costs incurred in replanting to replace lost seedlings. Amendment on taxes You can choose to capitalize certain indirect reforestation costs. Amendment on taxes   These capitalized amounts are your basis for the timber. Amendment on taxes Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Amendment on taxes See Depletion in chapter 7. Amendment on taxes Forestation and reforestation costs. Amendment on taxes   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. Amendment on taxes Any remaining costs can be amortized over an 84-month period. Amendment on taxes See chapter 7. Amendment on taxes 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. Amendment on taxes The accounts should include all reforestation treatments and the dates they were applied. Amendment on taxes 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. Amendment on taxes The timber account should be maintained until the timber is disposed of. Amendment on taxes For more information, see Notice 2006-47, 2006-20 I. Amendment on taxes R. Amendment on taxes B. Amendment on taxes 892, available at  www. Amendment on taxes irs. Amendment on taxes gov/irb/2006-20_IRB/ar11. Amendment on taxes html. Amendment on taxes   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. Amendment on taxes If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Amendment on taxes If you are not filing Form T (Timber), attach a statement to your return with the following information. Amendment on taxes The unique stand identification numbers. Amendment on taxes The total number of acres reforested during the tax year. Amendment on taxes The nature of the reforestation treatments. Amendment on taxes The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Amendment on taxes   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). Amendment on taxes Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amendment on taxes 9100-2” at the top of the amended return. Amendment on taxes File the amended return at the same address you filed the original return. Amendment on taxes    For more information about forestation and reforestation costs, see chapter 7. Amendment on taxes    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Amendment on taxes You can view this publication on the Internet at  www. Amendment on taxes fs. Amendment on taxes fed. Amendment on taxes us/publications. Amendment on taxes Christmas tree cultivation. Amendment on taxes   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. Amendment on taxes Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Amendment on taxes For more information, see Timber Depletion under Depletion in chapter 7. Amendment on taxes   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Amendment on taxes Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Amendment on taxes   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Amendment on taxes If the improvements do not have a determinable useful life, add their cost to the basis of the land. Amendment on taxes The cost is recovered when you sell or otherwise dispose of it. Amendment on taxes If the improvements have a determinable useful life, recover their cost through depreciation. Amendment on taxes 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. Amendment on taxes Recover these costs through depreciation. Amendment on taxes Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Amendment on taxes Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Amendment on taxes 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. Amendment on taxes Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Amendment on taxes Other Nondeductible Items You cannot deduct the following items on your tax return. Amendment on taxes Loss of growing plants, produce, and crops. Amendment on taxes   Losses of plants, produce, and crops raised for sale are generally not deductible. Amendment on taxes However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Amendment on taxes See chapter 11 for more information. Amendment on taxes Repayment of loans. Amendment on taxes   You cannot deduct the repayment of a loan. Amendment on taxes However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Amendment on taxes See Interest , earlier. Amendment on taxes Estate, inheritance, legacy, succession, and gift taxes. Amendment on taxes   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Amendment on taxes Loss of livestock. Amendment on taxes   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Amendment on taxes Losses from sales or exchanges between related persons. Amendment on taxes   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. Amendment on taxes For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amendment on taxes Cost of raising unharvested crops. Amendment on taxes   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. Amendment on taxes Add these costs to the basis of the land to determine the gain or loss on the sale. Amendment on taxes For more information, see Section 1231 Gains and Losses in chapter 9. Amendment on taxes Cost of unharvested crops bought with land. Amendment on taxes   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Amendment on taxes You cannot deduct the cost of the crops at the time of purchase. Amendment on taxes However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Amendment on taxes Cost related to gifts. Amendment on taxes   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Amendment on taxes The costs are not deductible in the year of the gift or any later year. Amendment on taxes 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. Amendment on taxes Club dues and membership fees. Amendment on taxes   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Amendment on taxes 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. Amendment on taxes Exception. Amendment on taxes   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. Amendment on taxes Boards of trade. Amendment on taxes Business leagues. Amendment on taxes Chambers of commerce. Amendment on taxes Civic or public service organizations. Amendment on taxes Professional associations. Amendment on taxes Trade associations. Amendment on taxes Real estate boards. Amendment on taxes Fines and penalties. Amendment on taxes   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Amendment on taxes 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. Amendment on taxes The amount of the loss you can deduct when figuring your taxable income may be limited. Amendment on taxes To figure your deductible loss, you must apply the following limits. Amendment on taxes The at-risk limits. Amendment on taxes The passive activity limits. Amendment on taxes The following discussions explain these limits. Amendment on taxes If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Amendment on taxes See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amendment on taxes 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. Amendment on taxes See Not-for-Profit Farming, later. Amendment on taxes At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Amendment on taxes These rules limit the losses you can deduct when figuring your taxable income. Amendment on taxes The deductible loss from an activity is limited to the amount you have at risk in the activity. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes For more information, see Publication 925. Amendment on taxes 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. Amendment on taxes Generally, a rental activity is a passive activity. Amendment on taxes If you have a passive activity, special rules limit the loss you can deduct in the tax year. Amendment on taxes You generally can deduct losses from passive activities only up to income from passive activities. Amendment on taxes Credits are similarly limited. Amendment on taxes For more information, see Publication 925. Amendment on taxes Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Amendment on taxes Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Amendment on taxes For more details, see IRC section 461(j). Amendment on taxes Excess farm loss. Amendment on taxes   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Amendment on taxes 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. Amendment on taxes   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Amendment on taxes 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. Amendment on taxes 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). Amendment on taxes Also, there is a limit on the deductions you can take. Amendment on taxes You cannot use a loss from that activity to offset income from other activities. Amendment on taxes Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Amendment on taxes An investment activity intended only to produce tax losses for the investors also comes under this limit. Amendment on taxes The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amendment on taxes It does not apply to corporations other than S corporations. Amendment on taxes In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Amendment on taxes No one factor alone is decisive. Amendment on taxes 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. Amendment on taxes Presumption of profit. Amendment on taxes   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. Amendment on taxes 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. Amendment on taxes The activity must be substantially the same for each year within this period. Amendment on taxes You have a profit when the gross income from an activity is more than the deductions for it. Amendment on taxes   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. Amendment on taxes   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Amendment on taxes This means the limits discussed here do not apply. Amendment on taxes You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Amendment on taxes You can rely on this presumption in every case, unless the IRS shows it is not valid. Amendment on taxes   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. Amendment on taxes Using the presumption later. Amendment on taxes   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. Amendment on taxes   You can choose to do this by filing Form 5213. Amendment on taxes 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. Amendment on taxes 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. Amendment on taxes   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Amendment on taxes Accordingly, it will not limit your deductions. Amendment on taxes 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. Amendment on taxes If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amendment on taxes 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. Amendment on taxes   Filing Form 5213 automatically extends the period of limitations on any year