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Efile free Publication 584SP - Additional Material Table of Contents This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Pasillo de Entrada (Entrance Hall) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Sala de Estar (Living Room) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Comedor (Dining Room) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Cocina (Kitchen) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Cuarto de Trabajo (Den) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Dormitorios (Bedrooms) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Baños (Bathrooms) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Cuarto de Recreación/Juegos (Recreation Room) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Lavadero y Sótano (Laundry and Basement) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Garaje (Garage) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Equipo Deportivo (Sporting Equipment) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Ropa de Hombres (Men's Clothing) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Ropa de Mujeres (Women's Clothing) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Ropa de Niños (Children's Clothing) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Joyería (Jewelry) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Enseres Eléctricos (Electrical Appliances) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Artículos de Hilo (Linens) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Artículos Misceláneos (Miscellaneous) This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free vehículos motorizados This image is too large to be displayed in the current screen. Efile free Please click the link to view the image. Efile free Hogar (Excluyendo su contenido) Hoja de Trabajo A. Efile free Costo u Otra Base (Ajustada) Precaución:Vea Instrucciones de la Hoja de Trabajo A antes de usar esta hoja de trabajo. Efile free         (a) Parte Personal (b) Parte Comercial/de Alquiler 1. Efile free   Anote el precio de compra de la vivienda dañada o destruida. Efile free (Si usted presentó el Formulario 2119 cuando en un principio adquirió dicha vivienda para aplazar ganancias provenientes de la venta de una vivienda anterior antes del 7 de mayo de 1997, anote la base ajustada de la vivienda nueva, usando la cantidad que aparece en dicho Formulario 2119). Efile free 1. Efile free     2. Efile free   Puntos pagados por el vendedor para una vivienda comprada después de 1990. Efile free No incluya puntos pagados por el vendedor que ya restó para llegar a la cantidad anotada en la línea 1 2. Efile free     3. Efile free   Reste la línea 2 de la línea 1 3. Efile free     4. Efile free   Cargos por liquidación o costos de cierre. Efile free (Vea Settlement Costs (Costos de Liquidación) en la Publicación 551, en inglés). Efile free Si la línea 1 incluye la base ajustada de la vivienda nueva del Formulario 2119, ignore las líneas 4a a la 4g y 5; para entonces pasar a la línea 6. Efile free         a. Efile free Honorarios por estudios de escritura 4a. Efile free       b. Efile free Honorarios legales (incluyendo honorarios por trámites relacionados con la escritura y la preparación de documentos) 4b. Efile free       c. Efile free Estudios topográficos 4c. Efile free       d. Efile free Seguro de escritura de propietario 4d. Efile free       e. Efile free Impuestos de traspaso o de sello 4e. Efile free       f. Efile free Cantidades que el vendedor adeudaba y que usted acordó pagar (impuestos atrasados o intereses, costos de registro o cargos hipotecarios y comisiones sobre las ventas) 4f. Efile free       g. Efile free Otros gastos 4g. Efile free     5. Efile free   Sume las líneas 4a a la 4g 5. Efile free     6. Efile free   Costo de ampliaciones y mejoras. Efile free (Vea Increases to Basis (Aumentos en la Base) en la Publicación 551, en inglés). Efile free No incluya ninguna de las ampliaciones o mejoras incluidas en la línea 1 6. Efile free     7. Efile free   Tasaciones tributarias especiales pagadas por concepto de mejoras locales, tales como calles y aceras o banquetas 7. Efile free     8. Efile free   Otros aumentos en la base 8. Efile free     9. Efile free   Sume las líneas 3, 5, 6, 7 y 8 9. Efile free     10. Efile free   Depreciación (permitida o permisible) relacionada con el uso comercial o alquiler de la vivienda 10. Efile free 0   11. Efile free   Otras disminuciones en la base (Vea Decreases to Basis (Disminuciones en la Base) en la Publicación 551, en inglés). Efile free 11. Efile free     12. Efile free   Sume las líneas 10 y 11 12. Efile free     13. Efile free   Costo u otra base (ajustada) de la vivienda dañada o destruida. Efile free Reste la línea 12 de la línea 9. Efile free Anote dicha cantidad aquí y en la línea 2 del Anexo 20 13. Efile free     Instrucciones para la Hoja de Trabajo A. Efile free Si usted usa la Hoja de Trabajo A para calcular el costo u otra base (ajustada) de su vivienda, siga estas instrucciones. Efile free NO utilice esta hoja de trabajo para determinar el costo de su base si adquirió interés de su vivienda por un difunto que falleció en 2010 y el albacea de su caudal hereditario presentó el Formulario 8939. Efile free SI. Efile free . Efile free . Efile free   ENTONCES. Efile free . Efile free . Efile free usted heredó su vivienda de un difunto que falleció antes o depués del 2010, o de un difunto que falleció en el 2010 pero la albacea de su caudal hereditario no presentó el Formulario 8939. Efile free 1 omita las líneas 1 a la 4 de la hoja de trabajo. Efile free 2 encuentre su base utilizando las reglas bajo Inherited Property (Bienes Heredados) en la Publicación 551, en inglés. Efile free Anote esta cantidad en la línea 5 de la hoja de trabajo. Efile free 3 llene las líneas 6 a la 13 de la hoja de trabajo. Efile free usted recibió su vivienda como un regalo (donación) 1 lea Property Received as Gift (Bienes Recibidos como Regalo (Donación)) en la Publicación 551, en inglés, y anote en las líneas 1 y 3 de la hoja de trabajo la base ajustada del donante o el valor justo de mercado de la vivienda en el momento del regalo (donación), lo que proceda. Efile free 2 si usted puede sumar algún impuesto federal sobre donaciones a su base, anote esa cantidad en la línea 5 de la hoja de trabajo. Efile free 3 llene el resto de la hoja de trabajo. Efile free usted recibió su vivienda como un canje por otra propiedad 1 anote en la línea 1 de la hoja de trabajo el valor justo de mercado de la otra propiedad al tiempo del canje. Efile free (Pero si usted recibió su vivienda como un canje por su vivienda anterior antes del 7 de mayo de 1997, y tuvo una ganancia en que el canje se aplazó utilizando el Formulario 2119, anote en la línea 1 de la hoja de trabajo la base ajustada de la vivienda nueva que aparece en dicho formulario). Efile free 2 llene el resto de la hoja de trabajo. Efile free usted construyó su vivienda 1 sume el precio de compra del terreno y el costo de la construcción de la vivienda. Efile free Anote ese total en la línea 1 de la hoja de trabajo. Efile free (Sin embargo, si usted presentó un Formulario 2119 para aplazar ganancias en la venta de una vivienda anterior antes del 7 de mayo de 1997, anote en la línea 1 de la hoja de trabajo la base ajustada de la vivienda nueva que aparece en dicho formulario). Efile free 2 llene el resto de la hoja de trabajo. Efile free usted recibió su vivienda de su cónyuge después del 18 de julio de 1984 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Efile free 2 anote en la línea 5 de la hoja de trabajo el costo u otra base (ajustada) de su cónyuge en la vivienda justo antes de que usted la haya recibido. Efile free 3 llene las líneas 6 a la 13 de la hoja de trabajo, haciendo ajustes a la base solamente por acontecimientos después del traspaso. Efile free usted fue dueño de una vivienda conjuntamente con su cónyuge, el cual le traspasó su participación en la misma después del 18 de julio de 1984     llene una hoja de trabajo, haciendo los ajustes a la base por acontecimientos tanto antes como después del traspaso. Efile free   usted recibió su vivienda de su cónyuge antes del 19 de julio de 1984 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Efile free 2 anote en la línea 5 de la hoja de trabajo el valor justo de mercado de la vivienda cuando usted la recibió. Efile free 3 llene las líneas 6 a la 13 de la hoja de trabajo, ajustando la base solamente por acontecimientos después del traspaso. Efile free usted fue dueño de una vivienda conjuntamente con su cónyuge, el cual le traspasó su participación en la misma antes del 19 de julio de 1984 1 llene una hoja de trabajo, las líneas 1 a la 13, ajustando la base solamente por acontecimientos antes del traspaso. Efile free 2 multiplique la cantidad de la línea 13 de esa hoja de trabajo por 0. Efile free 5 para obtener la base ajustada de la mitad de su participación a la hora del traspaso. Efile free 3 multiplique el valor justo de mercado de la vivienda a la hora del traspaso por 0. Efile free 5. Efile free Generalmente, el resultado corresponde a la base de la mitad de la participación de su cónyuge. Efile free 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Efile free 5 complete el resto de la segunda hoja de trabajo, ajustando la base solamente por acontecimientos después del traspaso. Efile free usted fue dueño de su vivienda conjuntamente con alguien (aparte de cónyuges que presenten una declaración conjunta) 1 llene las líneas 1 a la 13 de la hoja de trabajo. Efile free 2 multiplique la cantidad de la línea 13 para obtener la base ajustada suya por el porcentaje de su parte de su participación de la vivienda. Efile free Instrucciones para la Hoja de Trabajo A. Efile free (Continuación) SI. Efile free . Efile free . Efile free   ENTONCES. Efile free . Efile free . Efile free usted fue dueño de su vivienda conjuntamente con su cónyuge que falleció antes de 2010 y antes de un hecho fortuito 1 llene una hoja de trabajo, las líneas 1 a la 13, incluyendo ajustes a la base solamente por acontecimientos antes del fallecimiento de su cónyuge. Efile free 2 multiplique la cantidad de la línea 13 de esa hoja de trabajo por 0. Efile free 5 para obtener la base ajustada de la mitad de su participación a la fecha del fallecimiento. Efile free 3 calcule la base de la mitad de la participación de su cónyuge. Efile free Esto corresponde a la mitad del valor justo de mercado en la fecha del fallecimiento (o la valoración alternativa usada posteriormente para propósitos de los impuestos de sucesiones o caudales hereditarios). Efile free (La base de su mitad seguirá siendo la mitad de la base ajustada determinada en el paso 2). Efile free 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Efile free 5 complete las líneas 6 a la 13 de la segunda hoja de trabajo, ajustando la base solamente por acontecimientos después del fallecimiento de su cónyuge. Efile free usted fue dueño de su vivienda conjuntamente con su cónyuge que falleció antes de 2010 y antes de un hecho fortuito y, su vivienda permanente está en un estado donde rigen las leyes de la comunidad de bienes matrimoniales 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Efile free 2 anote la cantidad de su base en la línea 5 de la hoja de trabajo. Efile free Generalmente, esto corresponde al valor justo de mercado de la vivienda al momento del fallecimiento. Efile free (No obstante, vea Community Property (Comunidad de Bienes Matrimoniales) en la Publicación 551, en inglés, para reglas especiales). Efile free 3 llene el resto de la hoja de trabajo, ajustando la base solamente por acontecimientos después del fallecimiento de su cónyuge. Efile free usted fue dueño de su vivienda conjuntamente con alguien (que no sean cónyuges que presenten la declaración conjunta) que falleció antes de 2010 y antes de un hecho fortuito 1 llene las líneas 1 a la 13 de la hoja de trabajo, incluyendo ajustes a la base solamente por acontecimientos antes del fallecimiento del codueño. Efile free 2 multiplique la cantidad de la línea 13 por el porcentaje de su parte de su participación de la vivienda para obtener la base ajustada suyo en la fecha del fallecimiento. Efile free 3 multiplique el valor justo del mercado en la fecha del fallecimiento (o use la valuació alterna usada posteriormente para propositos de los impuestos de sucesiones o caudales hereditarios) por el porcentaje que corresponde a la participación del codueño. Efile free Ésta es la base para el interés parcial del codueño. Efile free 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Efile free 5 complete las líneas 6 a la 13 de la segunda hoja de trabajo incluyendo ajustes a la base solamente por acontecimientos después del fallecimiento del codueño. Efile free alguna vez su vivienda sufrió daños debido a un hecho fortuito anterior 1 en la línea 8 de la hoja de trabajo, anote toda cantidad que haya gastado para restaurar la vivienda a su estado original antes del hecho fortuito anterior. Efile free 2 en la línea 11 anote: todo reembolso de seguros que usted haya recibido (o espera recibir) por la pérdida anterior  y toda pérdida por hecho fortuito deducible de años anteriores no cubierta por  su seguro. Efile free la persona que le vendió su vivienda pagó puntos sobre su préstamo y usted compró su vivienda después de 1990 pero antes del 4 de abril de 1994   en la línea 2 anote los puntos pagados por el vendedor solamente si usted los dedujo como intereses hipotecarios de la vivienda en el año en que fueron pagados (a no ser que haya utilizado los puntos pagados por el vendedor para reducir la cantidad de la línea 1). Efile free la persona que le vendió su vivienda pagó puntos sobre su préstamo y usted compró su vivienda después del 3 de abril de 1994   en la línea 2 anote los puntos pagados por el vendedor aun si usted no los dedujo (a no ser que haya utilizado los puntos pagados por el vendedor para reducir la cantidad de la línea 1). Efile free usted usó parte de la propiedad como su vivienda y parte de ella para propósitos comerciales o para generar ingresos de alquiler   usted debe asignar las anotaciones en la Hoja de Trabajo A entre la parte personal (columna (a)) y la parte comercial/de alquiler (columna (b)). Efile free no corresponde ninguno de los puntos anteriores   llene completamente la hoja de trabajo. Efile free Prev  Up  Next   Home   More Online Publications
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Efile free 2. Efile free   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Efile free You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Efile free This chapter discusses accounting methods. Efile free For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Efile free Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Efile free Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Efile free Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Efile free A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Efile free An item considered material for financial statement purposes is generally also considered material for income tax purposes. Efile free See Publication 538 for more information. Efile free You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Efile free If you later want to change your accounting method, you generally must get IRS approval. Efile free How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Efile free Types of accounting methods. Efile free   Generally, you can use any of the following accounting methods. Efile free Each method is discussed in detail below. Efile free Cash method. Efile free Accrual method. Efile free Special methods of accounting for certain items of income and expenses. Efile free Combination (hybrid) method using elements of two or more of the above. Efile free Business and other items. Efile free   You can account for business and personal items using different accounting methods. Efile free For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Efile free Two or more businesses. Efile free   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Efile free Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Efile free Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Efile free However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Efile free See Accrual Method Required , later. Efile free Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Efile free Items of income include money received as well as property or services received. Efile free If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Efile free See chapter 3 for information on how to report farm income on your income tax return. Efile free Constructive receipt. Efile free   Income is constructively received when an amount is credited to your account or made available to you without restriction. Efile free You do not need to have possession of the income for it to be treated as income for the tax year. Efile free If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Efile free Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Efile free Direct payments and counter-cyclical payments. Efile free   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Efile free Delaying receipt of income. Efile free   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Efile free You must report the income in the year the money or property is received or made available to you without restriction. Efile free Example. Efile free Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Efile free She was told in December that her payment was available. Efile free She requested not to be paid until January 2014. Efile free However, she must still include this payment in her 2013 income because it was made available to her in 2013. Efile free Debts paid by another person or canceled. Efile free   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Efile free If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Efile free See Cancellation of Debt in chapter 3. Efile free Deferred payment contract. Efile free   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Efile free However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Efile free Example. Efile free You are a farmer who uses the cash method and a calendar tax year. Efile free You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Efile free You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Efile free However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Efile free Repayment of income. Efile free   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Efile free If the repayment is more than $3,000, a special rule applies. Efile free For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Efile free Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Efile free This includes business expenses for which you contest liability. Efile free However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Efile free See chapter 4 for information on how to deduct farm business expenses on your income tax return. Efile free Prepayment. Efile free   Generally, you cannot deduct expenses paid in advance. Efile free This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Efile free Example. Efile free On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Efile free In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Efile free In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Efile free An exception applies if the expense qualifies for the 12-month rule. Efile free See Publication 538 for more information and examples. Efile free See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Efile free Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Efile free The purpose of an accrual method of accounting is to correctly match income and expenses. Efile free Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Efile free See Accrual Method Required and Farm Inventory , later. Efile free Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Efile free Under this rule, include an amount in income on the earliest of the following dates. Efile free When you receive payment. Efile free When the income amount is due to you. Efile free When you earn the income. Efile free When title passes. Efile free If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Efile free Inventory. Efile free   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Efile free An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Efile free See Publication 538 for more information. Efile free Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Efile free Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Efile free The all-events test has been met. Efile free This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Efile free Economic performance has occurred. Efile free Economic performance. Efile free   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Efile free If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Efile free If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Efile free Example. Efile free Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Efile free She entered into a contract with ABC Farm Consulting in 2012. Efile free The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Efile free It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Efile free Jane paid ABC Farm Consulting $2,000 in December 2012. Efile free Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Efile free Economic performance for Jane's liability in the contract occurs as the services are provided. Efile free Jane incurs the $2,000 cost in 2013. Efile free An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Efile free For more information, see Economic Performance in Publication 538. Efile free Special rule for related persons. Efile free   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Efile free Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Efile free For more information, see Internal Revenue Code section 267. Efile free Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Efile free A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Efile free A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Efile free A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Efile free A tax shelter. Efile free Note. Efile free Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Efile free Family corporation. Efile free   A family corporation is generally a corporation that meets one of the following ownership requirements. Efile free Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Efile free Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Efile free Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Efile free For more information on family corporations, see Internal Revenue Code section 447. Efile free Tax shelter. Efile free   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Efile free Its principal purpose is the avoidance or evasion of federal income tax. Efile free It is a farming syndicate. Efile free A farming syndicate is an entity that meets either of the following tests. Efile free Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Efile free More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Efile free   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Efile free   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Efile free Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Efile free This record should show the actual count or measurement of the inventory. Efile free It should also show all factors that enter into its valuation, including quality and weight, if applicable. Efile free Hatchery business. Efile free   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Efile free Products held for sale. Efile free   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Efile free , must be included in inventory. Efile free Supplies. Efile free   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Efile free Deduct the cost of supplies in the year used or consumed in operations. Efile free Do not include incidental supplies in inventory as these are deductible in the year of purchase. Efile free Livestock. Efile free   Livestock held primarily for sale must be included in inventory. Efile free Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Efile free See also Unit-livestock-price method , later. Efile free If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Efile free Growing crops. Efile free   Generally, growing crops are not required to be included in inventory. Efile free However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Efile free See Uniform capitalization rules below. Efile free Also see Uniform Capitalization Rules in  chapter 6. Efile free Items to include in inventory. Efile free   Your inventory should include all items held for sale, or for use as feed, seed, etc. Efile free , whether raised or purchased, that are unsold at the end of the year. Efile free Uniform capitalization rules. Efile free   The following applies if you are required to use an accrual method of accounting. Efile free The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Efile free The costs of animals are subject to the uniform capitalization rules. Efile free Inventory valuation methods. Efile free   The following methods, described below, are those generally available for valuing inventory. Efile free The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Efile free Cost. Efile free Lower of cost or market. Efile free Farm-price method. Efile free Unit-livestock-price method. Efile free Cost and lower of cost or market methods. Efile free   See Publication 538 for information on these valuation methods. Efile free If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Efile free However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Efile free Farm-price method. Efile free   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Efile free Market price is the current price at the nearest market in the quantities you usually sell. Efile free Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Efile free If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Efile free Unit-livestock-price method. Efile free   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Efile free You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Efile free The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Efile free Unit prices and classifications are subject to approval by the IRS on examination of your return. Efile free You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Efile free IRS approval is not required for these adjustments. Efile free Any other changes in unit prices or classifications do require IRS approval. Efile free   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Efile free This method accounts only for the increase in cost of raising an animal to maturity. Efile free It does not provide for any decrease in the animal's market value after it reaches maturity. Efile free Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Efile free   Do not include sold or lost animals in the year-end inventory. Efile free If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Efile free The animals on hand at the end of the year are considered those most recently acquired. Efile free   You must include in inventory all livestock purchased primarily for sale. Efile free You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Efile free However, you must be consistent from year to year, regardless of the method you have chosen. Efile free You cannot change your method without obtaining approval from the IRS. Efile free   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Efile free If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Efile free However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Efile free This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Efile free It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Efile free Uniform capitalization rules. Efile free   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Efile free This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Efile free Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Efile free Example 1. Efile free You are a farmer who uses an accrual method of accounting. Efile free You keep your books on the calendar year basis. Efile free You sell grain in December 2013 but you are not paid until January 2014. Efile free Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Efile free Example 2. Efile free Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Efile free Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Efile free Deduct the costs of producing the grain in the year you pay for them. Efile free Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Efile free Crop method. Efile free   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Efile free You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Efile free Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Efile free    See chapter 4 for details on deducting the costs of operating a farm. Efile free Also see Regulations section 1. Efile free 162-12. Efile free Other special methods. Efile free   Other special methods of accounting apply to the following items. Efile free Amortization, see chapter 7. Efile free Casualties, see chapter 11. Efile free Condemnations, see chapter 11. Efile free Depletion, see chapter 7. Efile free Depreciation, see chapter 7. Efile free Farm business expenses, see chapter 4. Efile free Farm income, see chapter 3. Efile free Installment sales, see chapter 10. Efile free Soil and water conservation expenses, see chapter 5. Efile free Thefts, see chapter 11. Efile free Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Efile free However, the following restrictions apply. Efile free If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Efile free If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Efile free Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Efile free Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Efile free You may also have to pay a fee. Efile free To obtain approval, you must generally file Form 3115. Efile free There are instances when you can obtain automatic consent to change certain methods of accounting. Efile free See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Efile free For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Efile free Also see Publication 538. Efile free Prev  Up  Next   Home   More Online Publications