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State Income Tax Forms 2011

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State Income Tax Forms 2011

State income tax forms 2011 Index A Additional Medicare Tax, What's New for 2013, What's New, Employment Taxes, Additional Medicare Tax. State income tax forms 2011 Advertising, Advertising expenses. State income tax forms 2011 Amortization Anti-abuse rule, Anti-abuse rule. State income tax forms 2011 Anti-churning rules, Anti-Churning Rules Atmospheric pollution control facilities, Pollution Control Facilities Corporate organization costs, Costs of Organizing a Corporation Dispositions of section 197 intangibles, Disposition of Section 197 Intangibles Experimental costs, Research and Experimental Costs Geological and geophysical costs, Geological and Geophysical Costs How to deduct, How To Deduct Amortization Incorrect amount deducted, Incorrect Amount of Amortization Deducted Partnership organization costs, Costs of Organizing a Partnership Pollution control facilities, Pollution Control Facilities Reforestation costs, Reforestation Costs Reforestation expenses, Reforestation Costs Related person, Related person. State income tax forms 2011 Research costs, Research and Experimental Costs Section 197 intangibles defined, Section 197 Intangibles Defined Start-up costs, Business Start-Up Costs Starting a businesscosts, Starting a Business Anticipated liabilities, Anticipated liabilities. State income tax forms 2011 Assessments, local, Taxes for local benefits. State income tax forms 2011 Assistance (see Tax help) At-risk limits, At-risk limits. State income tax forms 2011 Attorney fees, Legal and professional fees. State income tax forms 2011 Awards, Achievement awards. State income tax forms 2011 , Length-of-service award. State income tax forms 2011 , Safety achievement award. State income tax forms 2011 B Bad debts Defined, Definition of Business Bad Debt How to treat, How To Claim a Business Bad Debt Recovery, Recovery of a Bad Debt Types of, Types of Business Bad Debts When worthless, When a Debt Becomes Worthless Bonuses Employee, Bonuses Royalties, Bonuses and advanced royalties. State income tax forms 2011 Bribes, Bribes and kickbacks. State income tax forms 2011 Business Assets, Business Assets Books and records, Business books and records, etc. State income tax forms 2011 Meal expenses, Meals and Entertainment Use of car, Business use of your car. State income tax forms 2011 , Car and truck expenses. State income tax forms 2011 Use of home, Business use of your home. State income tax forms 2011 C Campaign contribution, Political contributions. State income tax forms 2011 Capital expenses, Capital Expenses, Capital versus Deductible Expenses Capitalization of interest, Capitalization of Interest Car allowance, Car allowance. State income tax forms 2011 Car and truck expenses, Car and truck expenses. State income tax forms 2011 Carrying charges, Carrying Charges Charitable contributions, Charitable contributions. State income tax forms 2011 Circulation costs, newspapers and periodicals, Circulation Costs Club dues, Club dues and membership fees. State income tax forms 2011 Comments on publication, Comments and suggestions. State income tax forms 2011 Commitment fees, Commitment fees or standby charges. State income tax forms 2011 Computer software, Computer software. State income tax forms 2011 Constant-yield method, OID, Constant-yield method. State income tax forms 2011 Contested liability, Contested liability. State income tax forms 2011 Contributions Charitable, Charitable contributions. State income tax forms 2011 Political, Political contributions. State income tax forms 2011 Copyrights, Patents, copyrights, etc. State income tax forms 2011 Cost depletion, Cost Depletion Cost of getting lease, Cost of Getting a Lease, Getting a Lease Cost of goods sold, Cost of Goods Sold Cost recovery, Cost recovery. State income tax forms 2011 Covenant not to compete, Covenant not to compete. State income tax forms 2011 Credit card convenience fees, Credit card convenience fees. State income tax forms 2011 D De minimis OID, De minimis OID. State income tax forms 2011 Debt-financed distributions, Debt-financed distribution. State income tax forms 2011 Definitions Business bad debt, Definition of Business Bad Debt Necessary expense, What Can I Deduct? Ordinary expense, What Can I Deduct? Section 197 intangibles, Section 197 Intangibles Defined Demolition expenses, Demolition expenses or losses. State income tax forms 2011 Depletion Mineral property, Mineral Property Oil and gas wells, Oil and Gas Wells Percentage table, Mines and other natural deposits. State income tax forms 2011 Timber, Timber Who can claim, Who Can Claim Depletion? Depreciation (see Cost recovery) Development costs, miners, Development Costs Disabled, improvements for, Barrier Removal Costs Drilling and development costs, Intangible Drilling Costs Dues, membership, Club dues and membership fees. State income tax forms 2011 E Economic interest, Who Can Claim Depletion? Economic performance, Economic performance. State income tax forms 2011 Education expenses, Education Expenses, Education expenses. State income tax forms 2011 Elderly, improvements for, Barrier Removal Costs Employee benefit programs, Employee benefit programs. State income tax forms 2011 Employment taxes, Employment Taxes Entertainment, Reimbursement of Travel, Meals, and Entertainment Excise taxes, Excise taxes. State income tax forms 2011 Experimentation costs, Research and Experimental Costs, Research and Experimental Costs Exploration costs, Exploration Costs F Fees Commitment, Commitment fees or standby charges. State income tax forms 2011 Legal and professional, Legal and professional fees. State income tax forms 2011 Regulatory, Licenses and regulatory fees. State income tax forms 2011 Tax return preparation, Tax preparation fees. State income tax forms 2011 Fines, Penalties and fines. State income tax forms 2011 Forgone, Forgone interest. State income tax forms 2011 Forgone interest, Forgone interest. State income tax forms 2011 Form 3115, Form 3115. State income tax forms 2011 , Changing Your Accounting Method 4562, How To Deduct Amortization 5213, Using the presumption later. State income tax forms 2011 8826, Disabled access credit. State income tax forms 2011 8885, Health coverage tax credit. State income tax forms 2011 T, Form T. State income tax forms 2011 Franchise, Franchise, trademark, or trade name. State income tax forms 2011 , Franchise, trademark, trade name. State income tax forms 2011 Franchise taxes, Franchise taxes. State income tax forms 2011 Free tax services, Free help with your tax return. State income tax forms 2011 Fringe benefits, Fringe Benefits Fuel taxes, Fuel taxes. State income tax forms 2011 G Gas wells, Natural Gas Wells Geological and geophysical costs Development, oil and gas, Geological and Geophysical Costs Exploration, oil and gas, Geological and Geophysical Costs Geothermal wells, Intangible Drilling Costs, Mines and Geothermal Deposits Gifts, nominal value, Gifts of nominal value. State income tax forms 2011 Going into business, Going Into Business, Starting a Business Goodwill, Goodwill. State income tax forms 2011 Gross income, not-for-profit activity, Gross Income H Health insurance, deduction for self-employed, Self-Employed Health Insurance Deduction Heating equipment, Heating equipment. State income tax forms 2011 Help (see Tax help) Home, business use of, Business use of your home. State income tax forms 2011 I Impairment-related expenses, Impairment-related expenses. State income tax forms 2011 Improvements, Improvements By lessee, Improvements by Lessee For disabled and elderly, Barrier Removal Costs Income taxes, Income Taxes Incorrect amount of amortization deducted, Incorrect Amount of Amortization Deducted Insurance Capitalized premiums, Capitalized Premiums Deductible premiums, Deductible Premiums Nondeductible premiums, Nondeductible Premiums Self-employed individuals, Self-Employed Health Insurance Deduction Intangible drilling costs, Intangible Drilling Costs Intangibles, amortization, Section 197 Intangibles Interest, Forgone interest. State income tax forms 2011 Allocation of, Allocation of Interest Below-market, Below-Market Loans Business expense for, Interest Capitalized, Capitalized interest. State income tax forms 2011 , Capitalization of Interest Carrying charge, Carrying Charges Deductible, Interest You Can Deduct Life insurance policies, Interest on loans with respect to life insurance policies. State income tax forms 2011 Not deductible, Interest You Cannot Deduct Refunds of, Refunds of interest. State income tax forms 2011 When to deduct, When To Deduct Interest Internet-related expenses, Internet-related expenses. State income tax forms 2011 Interview expenses, Interview expense allowances. State income tax forms 2011 K Key person, Who is a key person? Kickbacks, Bribes and kickbacks. State income tax forms 2011 L Leases Canceling, Canceling a lease. State income tax forms 2011 Cost of getting, Cost of Getting a Lease, Getting a Lease Improvements by lessee, Improvements by Lessee Leveraged, Leveraged leases. State income tax forms 2011 Mineral, Bonuses and advanced royalties. State income tax forms 2011 Oil and gas, Bonuses and advanced royalties. State income tax forms 2011 Sales distinguished, Lease or purchase. State income tax forms 2011 Taxes on, Taxes on Leased Property Legal and professional fees, Legal and professional fees. State income tax forms 2011 Licenses, Government-granted license, permit, etc. State income tax forms 2011 , Licenses and regulatory fees. State income tax forms 2011 Life insurance coverage, Life insurance coverage. State income tax forms 2011 Limit on deductions, Not-for-Profit Activities Line of credit, Line of credit (continuous borrowings). State income tax forms 2011 Loans Below-market interestrate, Below-Market Loans Discounted, Discounted loan. State income tax forms 2011 Loans or Advances, Loans or Advances Lobbying expenses, Lobbying expenses. State income tax forms 2011 Long-term care insurance, Qualified long-term care insurance. State income tax forms 2011 Losses, Limits on losses. State income tax forms 2011 , Not-for-Profit Activities At-risk limits, At-risk limits. State income tax forms 2011 Net operating, Net operating loss. State income tax forms 2011 Passive activities, Passive activities. State income tax forms 2011 M Machinery parts, Machinery parts. State income tax forms 2011 Meals, Reimbursement of Travel, Meals, and Entertainment Meals and entertainment, Meals and Entertainment Meals and lodging, Meals and lodging. State income tax forms 2011 Methods of accounting, When Can I Deduct an Expense? Mining Depletion, Mines and Geothermal Deposits Development costs, Development Costs Exploration costs, Exploration Costs Mortgage, Mortgage. State income tax forms 2011 , Expenses paid to obtain a mortgage. State income tax forms 2011 Moving expenses, machinery, Moving machinery. State income tax forms 2011 N Natural gas, Natural Gas Wells Nonqualifying intangibles, Assets That Are Not Section 197 Intangibles Not-for-profit activities, Not-for-Profit Activities Not-for-profit activity, gross income, Gross Income O Office in home, Business use of your home. State income tax forms 2011 Oil and gas wells Depletion, Oil and Gas Wells Drilling costs, Intangible Drilling Costs Partnerships, Partnerships and S Corporations S corporations, Partnerships and S Corporations Optional safe harbor method, Optional safe harbor method. State income tax forms 2011 Optional write-off method Circulation costs, Optional Write-off of Certain Tax Preferences Experimental costs, Optional Write-off of Certain Tax Preferences Intangible drilling and development costs, Optional Write-off of Certain Tax Preferences Mining exploration and development costs, Optional Write-off of Certain Tax Preferences Research costs, Optional Write-off of Certain Tax Preferences Organization costs Corporate, Costs of Organizing a Corporation Partnership, Costs of Organizing a Partnership Organizational costs, Business Start-Up and Organizational Costs Original issue discount, Original issue discount (OID). State income tax forms 2011 Outplacement services, Outplacement services. State income tax forms 2011 P Passive activities, Passive activities. State income tax forms 2011 Payments in kind, Payments in kind. State income tax forms 2011 Penalties, Prepayment penalty. State income tax forms 2011 Deductible, Penalties and fines. State income tax forms 2011 Nondeductible, Penalties and fines. State income tax forms 2011 Prepayment, Prepayment penalty. State income tax forms 2011 Per diem and car allowances, Per Diem and Car Allowances Percentage depletion, Percentage Depletion Personal property tax, Personal property tax. State income tax forms 2011 Political contributions, Political contributions. State income tax forms 2011 Pollution control facilities, Pollution Control Facilities Prepaid expense, Prepayment. State income tax forms 2011 Extends useful life, Prepayment. State income tax forms 2011 Interest, Prepaid interest. State income tax forms 2011 , Prepaid interest. State income tax forms 2011 Rent, Rent paid in advance. State income tax forms 2011 Prepayment penalty, Prepayment penalty. State income tax forms 2011 Presumption of profit, Not-for-Profit Activities Publications (see Tax help) R Real estate taxes, Real Estate Taxes Recapture Exploration expenses, Recapture of exploration expenses. State income tax forms 2011 Timber property, Recapture. State income tax forms 2011 Recordkeeping, Partnerships and S Corporations Recovery of amount deducted, Recovery of amount deducted (tax benefit rule). State income tax forms 2011 Refiners who cannot claim percentage depletion, Refiners who cannot claim percentage depletion. State income tax forms 2011 Reforestation costs, Reforestation Costs, Reforestation Costs Regulatory fees, Licenses and regulatory fees. State income tax forms 2011 Reimbursements, Reimbursements Business expenses, Reimbursements for Business Expenses Mileage, Per Diem and Car Allowances Nonaccountable plan, Nonaccountable Plans Per diem , Per Diem and Car Allowances Related persons Anti-churning rules, Related person. State income tax forms 2011 Coal or iron ore, Disposal to related person. State income tax forms 2011 Payments to, Related person. State income tax forms 2011 , Related person. State income tax forms 2011 Refiners, Related person. State income tax forms 2011 Unreasonable rent, Unreasonable rent. State income tax forms 2011 Removal, Retired Asset Removal Costs, Barrier Removal Costs Rent expense, capitalizing, Capitalizing Rent Expenses Repairs, Repairs. State income tax forms 2011 Repayments (claim of right), Repayments. State income tax forms 2011 Research costs, Research and Experimental Costs, Research and Experimental Costs Retiree drug subsidy, What's New for 2013, What's New S Sales taxes, Sales tax. State income tax forms 2011 Section 179 expense deduction (see Cost recovery) Self-employed health insurance deduction, Self-Employed Health Insurance Deduction Self-employment tax, Self-employment tax. State income tax forms 2011 Self-insurance, reserve for, Nondeductible Premiums Sick pay, Sick and Vacation Pay Standard meal allowance, Standard meal allowance. State income tax forms 2011 Standard mileage rate, Car allowance. State income tax forms 2011 (see Business use of your car) Standby charges, Commitment fees or standby charges. State income tax forms 2011 Start-up costs, Business Start-Up and Organizational Costs, Business Start-Up Costs Subscriptions, Subscriptions. State income tax forms 2011 Suggestions for publication, Comments and suggestions. State income tax forms 2011 Supplies and materials, Supplies and materials. State income tax forms 2011 T Tax help, How To Get Tax Help Tax preparation fees, Tax preparation fees. State income tax forms 2011 Taxes, Taxes on Leased Property Carrying charge, Carrying Charges Employment, Employment Taxes Excise, Excise taxes. State income tax forms 2011 Franchise, Franchise taxes. State income tax forms 2011 Fuel, Fuel taxes. State income tax forms 2011 Income, Income Taxes Leased property, Taxes on Leased Property Personal property, Personal property tax. State income tax forms 2011 Real estate, Real Estate Taxes Sales, Sales tax. State income tax forms 2011 Unemployment fund, Unemployment fund taxes. State income tax forms 2011 Telephone, Telephone. State income tax forms 2011 Timber, Reforestation Costs, Timber Tools, Tools. State income tax forms 2011 Trademark, trade name, Franchise, trademark, or trade name. State income tax forms 2011 , Franchise, trademark, trade name. State income tax forms 2011 Travel, Reimbursement of Travel, Meals, and Entertainment TTY/TDD information, How To Get Tax Help U Unemployment fund taxes, Unemployment fund taxes. State income tax forms 2011 Unpaid expenses, related person, Related person. State income tax forms 2011 Utilities, Utilities. State income tax forms 2011 V Vacation pay, Sick and Vacation Pay W Wages Property, Property Tests for deducting pay, Tests for Deducting Pay Welfare benefit funds, Welfare benefit funds. State income tax forms 2011 Prev  Up     Home   More Online Publications
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The State Income Tax Forms 2011

State income tax forms 2011 4. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 Category 1. State income tax forms 2011 Category 2. State income tax forms 2011 Category 3. State income tax forms 2011 What's New for 2013 Standard mileage rate. State income tax forms 2011  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. State income tax forms 2011 5 cents. State income tax forms 2011 See Truck and Car Expenses , later. State income tax forms 2011 Simplified method for business use of home deduction. State income tax forms 2011  The IRS now provides a simplified method to determine your expenses for business use of your home. State income tax forms 2011 For more information, see Schedule C (Form 1040), Part II, and its instructions. State income tax forms 2011 Introduction You can generally deduct the current costs of operating your farm. State income tax forms 2011 Current costs are expenses you do not have to capitalize or include in inventory costs. State income tax forms 2011 However, your deduction for the cost of livestock feed and certain other supplies may be limited. State income tax forms 2011 If you have an operating loss, you may not be able to deduct all of it. State income tax forms 2011 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. State income tax forms 2011 Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. State income tax forms 2011 “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. State income tax forms 2011 Schedule F, Part II, lists some common farm expenses that are typically deductible. State income tax forms 2011 This chapter discusses many of these expenses, as well as others not listed on Schedule F. State income tax forms 2011 Reimbursed expenses. State income tax forms 2011   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. State income tax forms 2011 If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. State income tax forms 2011 See Refund or reimbursement under Income From Other Sources in chapter 3. State income tax forms 2011 Personal and business expenses. State income tax forms 2011   Some expenses you pay during the tax year may be part personal and part business. State income tax forms 2011 These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. State income tax forms 2011   You must allocate these mixed expenses between their business and personal parts. State income tax forms 2011 Generally, the personal part of these expenses is not deductible. State income tax forms 2011 The business portion of the expenses is deductible on Schedule F. State income tax forms 2011 Example. State income tax forms 2011 You paid $1,500 for electricity during the tax year. State income tax forms 2011 You used 1/3 of the electricity for personal purposes and 2/3 for farming. State income tax forms 2011 Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. State income tax forms 2011 Reasonable allocation. State income tax forms 2011   It is not always easy to determine the business and nonbusiness parts of an expense. State income tax forms 2011 There is no method of allocation that applies to all mixed expenses. State income tax forms 2011 Any reasonable allocation is acceptable. State income tax forms 2011 What is reasonable depends on the circumstances in each case. State income tax forms 2011 Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. State income tax forms 2011 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. State income tax forms 2011 Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. State income tax forms 2011 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. State income tax forms 2011 Poultry bought for resale and not resold during the year. State income tax forms 2011 Deduction limit. State income tax forms 2011   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). State income tax forms 2011 This limit does not apply if you meet one of the exceptions described later. State income tax forms 2011 See Chapter 2 for a discussion of the cash method of accounting. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. State income tax forms 2011 Example. State income tax forms 2011 You may not qualify for the exception described next. State income tax forms 2011 During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. State income tax forms 2011 Your total prepaid farm supplies expense for 2013 is $5,500. State income tax forms 2011 Your other deductible farm expenses totaled $10,000 for 2013. State income tax forms 2011 Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. State income tax forms 2011 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. State income tax forms 2011 Exceptions. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011   You are a farm-related taxpayer if any of the following tests apply. State income tax forms 2011 Your main home is on a farm. State income tax forms 2011 Your principal business is farming. State income tax forms 2011 A member of your family meets (1) or (2). State income tax forms 2011 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. State income tax forms 2011    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. State income tax forms 2011 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. State income tax forms 2011 The payment is for the purchase of feed rather than a deposit. State income tax forms 2011 The prepayment has a business purpose and is not merely for tax avoidance. State income tax forms 2011 Deducting the prepayment does not result in a material distortion of your income. State income tax forms 2011 If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. State income tax forms 2011 If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. State income tax forms 2011 This rule does not apply to the purchase of commodity futures contracts. State income tax forms 2011 Payment for the purchase of feed. State income tax forms 2011   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. State income tax forms 2011 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. State income tax forms 2011   The following are some factors that show a payment is a deposit rather than for the purchase of feed. State income tax forms 2011 The absence of specific quantity terms. State income tax forms 2011 The right to a refund of any unapplied payment credit at the end of the contract. State income tax forms 2011 The seller's treatment of the payment as a deposit. State income tax forms 2011 The right to substitute other goods or products for those specified in the contract. State income tax forms 2011   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. State income tax forms 2011 Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. State income tax forms 2011 Business purpose. State income tax forms 2011   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. State income tax forms 2011 The following are some examples of business benefits. State income tax forms 2011 Fixing maximum prices and securing an assured feed supply. State income tax forms 2011 Securing preferential treatment in anticipation of a feed shortage. State income tax forms 2011   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. State income tax forms 2011 No material distortion of income. State income tax forms 2011   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. State income tax forms 2011 Your customary business practice in conducting your livestock operations. State income tax forms 2011 The expense in relation to past purchases. State income tax forms 2011 The time of year you made the purchase. State income tax forms 2011 The expense in relation to your income for the year. State income tax forms 2011 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. State income tax forms 2011 You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. State income tax forms 2011 The cost of boarding farm labor is a deductible labor cost. State income tax forms 2011 Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. State income tax forms 2011 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. State income tax forms 2011 See chapter 13 for more information on employment taxes. State income tax forms 2011 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. State income tax forms 2011 See Taxes , later. State income tax forms 2011 Property for services. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011   Treat the wages deducted as an amount received for the property. State income tax forms 2011 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. State income tax forms 2011 Any gain or loss has the same character the exchanged property had in your hands. State income tax forms 2011 For more information, see chapter 8. State income tax forms 2011 Child as an employee. State income tax forms 2011   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. State income tax forms 2011 Include these wages in the child's income. State income tax forms 2011 The child may have to file an income tax return. State income tax forms 2011 These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. State income tax forms 2011 For more information, see Family Employees in chapter 13. State income tax forms 2011    A Form W-2, Wage and Tax Statement, should be issued to the child employee. State income tax forms 2011   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. State income tax forms 2011 The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. State income tax forms 2011 Spouse as an employee. State income tax forms 2011   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. State income tax forms 2011 Wages you pay to your spouse are subject to social security and Medicare taxes. State income tax forms 2011 For more information, see Family Employees in chapter 13. State income tax forms 2011 Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. State income tax forms 2011 However, those wages may be subject to the employment taxes discussed in chapter 13. State income tax forms 2011 Household workers. State income tax forms 2011   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. State income tax forms 2011 Construction labor. State income tax forms 2011   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. State income tax forms 2011 These wages are part of the cost of the building or other improvement. State income tax forms 2011 You must capitalize them. State income tax forms 2011 Maintaining your home. State income tax forms 2011   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. State income tax forms 2011 For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. State income tax forms 2011 The employee devotes the remaining time to work on your farm. State income tax forms 2011 You cannot deduct 5% of the wages and employment taxes you pay for that employee. State income tax forms 2011 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). State income tax forms 2011 Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 For example, if you repair the barn roof, the cost is deductible. State income tax forms 2011 But if you replace the roof, it is a capital expense. State income tax forms 2011 For more information, see Capital Expenses , later. State income tax forms 2011 Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. State income tax forms 2011 Cash method. State income tax forms 2011   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. State income tax forms 2011 You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. State income tax forms 2011 You can, however, deduct the interest when you start making payments on the new loan. State income tax forms 2011 For more information, see Cash Method in chapter 2. State income tax forms 2011 Prepaid interest. State income tax forms 2011   Under the cash method, you generally cannot deduct any interest paid before the year it is due. State income tax forms 2011 Interest paid in advance may be deducted only in the tax year in which it is due. State income tax forms 2011 Accrual method. State income tax forms 2011   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. State income tax forms 2011 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. State income tax forms 2011 For more information, see Accrual Method in chapter 2. State income tax forms 2011 Allocation of interest. State income tax forms 2011   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. State income tax forms 2011 Allocate the interest to the following categories. State income tax forms 2011 Trade or business interest. State income tax forms 2011 Passive activity interest. State income tax forms 2011 Investment interest. State income tax forms 2011 Portfolio interest. State income tax forms 2011 Personal interest. State income tax forms 2011   You generally allocate interest on a loan the same way you allocate the loan proceeds. State income tax forms 2011 You allocate loan proceeds by tracing disbursements to specific uses. State income tax forms 2011 The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. State income tax forms 2011 Secured loan. State income tax forms 2011   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. State income tax forms 2011 Example. State income tax forms 2011 You secure a loan with property used in your farming business. State income tax forms 2011 You use the loan proceeds to buy a car for personal use. State income tax forms 2011 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. State income tax forms 2011 If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. State income tax forms 2011 The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. State income tax forms 2011 However, you can choose to treat the loan as not secured by your home. State income tax forms 2011 For more information, see Publication 936. State income tax forms 2011 Allocation period. State income tax forms 2011   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. State income tax forms 2011 The date the loan is repaid. State income tax forms 2011 The date the loan is reallocated to another use. State income tax forms 2011 More information. State income tax forms 2011   For more information on interest, see chapter 4 in Publication 535. State income tax forms 2011 Breeding Fees You can deduct breeding fees as a farm business expense. State income tax forms 2011 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. State income tax forms 2011 For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. State income tax forms 2011 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. State income tax forms 2011 You can also deduct the cost of applying these materials in the year you pay or incur it. State income tax forms 2011 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. State income tax forms 2011 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. State income tax forms 2011 However, you can choose to deduct these expenses in the year paid or incurred. State income tax forms 2011 If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. State income tax forms 2011 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. State income tax forms 2011 Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. State income tax forms 2011 It does not include land you have never used previously for producing crops or sustaining livestock. State income tax forms 2011 You cannot deduct initial land preparation costs. State income tax forms 2011 (See Capital Expenses , later. State income tax forms 2011 ) Include government payments you receive for lime or fertilizer in income. State income tax forms 2011 See Fertilizer and Lime under Agricultural Program Payments in chapter 3. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 For information on employment taxes, see chapter 13. State income tax forms 2011 Allocation of taxes. State income tax forms 2011   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. State income tax forms 2011 You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). State income tax forms 2011 To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. State income tax forms 2011 The allocation can be done from the assessed valuations. State income tax forms 2011 If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. State income tax forms 2011 State and local general sales taxes. State income tax forms 2011   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. State income tax forms 2011 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. State income tax forms 2011 Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. State income tax forms 2011 State and federal income taxes. State income tax forms 2011   Individuals cannot deduct state and federal income taxes as farm business expenses. State income tax forms 2011 Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). State income tax forms 2011 However, you cannot deduct federal income tax. State income tax forms 2011 Highway use tax. State income tax forms 2011   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. State income tax forms 2011 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. State income tax forms 2011 Self-employment tax deduction. State income tax forms 2011   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. State income tax forms 2011 For more information, see chapter 12. State income tax forms 2011 Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. State income tax forms 2011 This includes premiums you pay for the following types of insurance. State income tax forms 2011 Fire, storm, crop, theft, liability, and other insurance on farm business assets. State income tax forms 2011 Health and accident insurance on your farm employees. State income tax forms 2011 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. State income tax forms 2011 Business interruption insurance. State income tax forms 2011 State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). State income tax forms 2011 Insurance to secure a loan. State income tax forms 2011   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. State income tax forms 2011 In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. State income tax forms 2011 Advance premiums. State income tax forms 2011   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. State income tax forms 2011 Example. State income tax forms 2011 On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. State income tax forms 2011 The policy will cover a period of 3 years beginning on July 1, 2013. State income tax forms 2011 Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. State income tax forms 2011 Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. State income tax forms 2011 In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). State income tax forms 2011 Deduct the remaining $500 in 2016. State income tax forms 2011 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. State income tax forms 2011 Business interruption insurance. State income tax forms 2011   Use and occupancy and business interruption insurance premiums are deductible as a business expense. State income tax forms 2011 This insurance pays for lost profits if your business is shut down due to a fire or other cause. State income tax forms 2011 Report any proceeds in full on Schedule F, Part I. State income tax forms 2011 Self-employed health insurance deduction. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 Generally, this deduction cannot be more than the net profit from the business under which the plan was established. State income tax forms 2011   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. State income tax forms 2011   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. State income tax forms 2011 Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. State income tax forms 2011   For more information, see Deductible Premiums in Publication 535, chapter 6. State income tax forms 2011 Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. State income tax forms 2011 However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. State income tax forms 2011 Advance payments. State income tax forms 2011   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. State income tax forms 2011 Farm home. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. State income tax forms 2011 Conditional sales contract. State income tax forms 2011   Whether an agreement is a conditional sales contract depends on the intent of the parties. State income tax forms 2011 Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. State income tax forms 2011 No single test, or special combination of tests, always applies. State income tax forms 2011 However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. State income tax forms 2011 The agreement applies part of each payment toward an equity interest you will receive. State income tax forms 2011 You get title to the property after you make a stated amount of required payments. State income tax forms 2011 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. State income tax forms 2011 You pay much more than the current fair rental value of the property. State income tax forms 2011 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. State income tax forms 2011 Determine this value when you make the agreement. State income tax forms 2011 You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. State income tax forms 2011 The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. State income tax forms 2011 Example. State income tax forms 2011 You lease new farm equipment from a dealer who both sells and leases. State income tax forms 2011 The agreement includes an option to purchase the equipment for a specified price. State income tax forms 2011 The lease payments and the specified option price equal the sales price of the equipment plus interest. State income tax forms 2011 Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. State income tax forms 2011 For federal income tax purposes, the agreement is a conditional sales contract. State income tax forms 2011 You cannot deduct any of the lease payments as rent. State income tax forms 2011 You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. State income tax forms 2011 Motor vehicle leases. State income tax forms 2011   Special rules apply to lease agreements that have a terminal rental adjustment clause. State income tax forms 2011 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. State income tax forms 2011 If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. State income tax forms 2011 For more information, see Internal Revenue Code (IRC) section 7701(h). State income tax forms 2011 Leveraged leases. State income tax forms 2011   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). State income tax forms 2011 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. State income tax forms 2011 irs. State income tax forms 2011 gov/pub/irs-irbs/irb01-19. State income tax forms 2011 pdf. State income tax forms 2011 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. State income tax forms 2011 You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. State income tax forms 2011 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. State income tax forms 2011 Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 You use it exclusively and regularly for the administrative or management activities of your trade or business. State income tax forms 2011 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. State income tax forms 2011 If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. State income tax forms 2011 The IRS now provides a simplified method to determine your expenses for business use of your home. State income tax forms 2011 For more information, see Schedule C (Form 1040), Part II, and its instructions. State income tax forms 2011 Deduction limit. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011   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. State income tax forms 2011 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). State income tax forms 2011 Farm expenses other than expenses that relate to the use of your home. State income tax forms 2011 If you are self-employed, do not include your deduction for half of your self-employment tax. State income tax forms 2011   Deductions over the current year's limit can be carried over to your next tax year. State income tax forms 2011 They are subject to the deduction limit for the next tax year. State income tax forms 2011 More information. State income tax forms 2011   See Publication 587 for more information on deducting expenses for the business use of your home. State income tax forms 2011 Telephone expense. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 Cell phone charges for calls relating to your farm business are deductible. State income tax forms 2011 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. State income tax forms 2011 Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. State income tax forms 2011 Only expenses for business use are deductible. State income tax forms 2011 These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). State income tax forms 2011 Standard mileage rate. State income tax forms 2011   Instead of using actual costs, under certain conditions you can use the standard mileage rate. State income tax forms 2011 The standard mileage rate for each mile of business use is 56. State income tax forms 2011 5 cents in 2013. State income tax forms 2011 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. State income tax forms 2011   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. State income tax forms 2011 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. State income tax forms 2011 Example. State income tax forms 2011 Maureen owns a car and four pickup trucks that are used in her farm business. State income tax forms 2011 Her farm employees use the trucks and she uses the car for business. State income tax forms 2011 Maureen cannot use the standard mileage rate for the car or the trucks. State income tax forms 2011 This is because all five vehicles are used in Maureen's farm business at the same time. State income tax forms 2011 She must use actual expenses for all vehicles. State income tax forms 2011 Business use percentage. State income tax forms 2011   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. State income tax forms 2011 You choose this method of substantiating business use the first year the vehicle is placed in service. State income tax forms 2011 Once you make this choice, you may not change to another method later. State income tax forms 2011 The following are uses directly connected with the business of farming. State income tax forms 2011 Cultivating land. State income tax forms 2011 Raising or harvesting any agricultural or horticultural commodity. State income tax forms 2011 Raising, shearing, feeding, caring for, training, and managing animals. State income tax forms 2011 Driving to the feed or supply store. State income tax forms 2011   If you keep records and they show that your business use was more than 75%, you may be able to claim more. State income tax forms 2011 See Recordkeeping requirements under Travel Expenses , below. State income tax forms 2011 More information. State income tax forms 2011   For more information on deductible truck and car expenses, see Publication 463, chapter 4. State income tax forms 2011 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. State income tax forms 2011 Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. State income tax forms 2011 You cannot deduct lavish or extravagant expenses. State income tax forms 2011 Usually, the location of your farm business is considered your home for tax purposes. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 The following are some types of deductible travel expenses. State income tax forms 2011 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. State income tax forms 2011 Meals. State income tax forms 2011   You ordinarily can deduct only 50% of your business-related meals expenses. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 For information on entertainment expenses, see Publication 463, chapter 2. State income tax forms 2011   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. State income tax forms 2011 You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. State income tax forms 2011    Recordkeeping requirements. State income tax forms 2011 You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. State income tax forms 2011 Estimates or approximations do not qualify as proof of an expense. State income tax forms 2011   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. State income tax forms 2011 Generally, it is best to record the expense and get documentation of it at the time you pay it. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 More information. State income tax forms 2011   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. State income tax forms 2011 Reimbursements to employees. State income tax forms 2011   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. State income tax forms 2011 Employees may be reimbursed under an accountable or nonaccountable plan. State income tax forms 2011 Under an accountable plan, the employee must provide evidence of expenses. State income tax forms 2011 Under a nonaccountable plan, no evidence of expenses is required. State income tax forms 2011 If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. State income tax forms 2011 If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. State income tax forms 2011 For more information, see Publication 535, chapter 11. State income tax forms 2011 Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. State income tax forms 2011 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. State income tax forms 2011 Do not take a separate deduction for the penalty. State income tax forms 2011 Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. State income tax forms 2011 These costs include repairs, utilities, insurance, and depreciation. State income tax forms 2011 The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. State income tax forms 2011 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. State income tax forms 2011 You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. State income tax forms 2011 However, see Chickens, seeds, and young plants , below. State income tax forms 2011 Example. State income tax forms 2011 You use the cash method of accounting. State income tax forms 2011 In 2013, you buy 50 steers you will sell in 2014. State income tax forms 2011 You cannot deduct the cost of the steers on your 2013 tax return. State income tax forms 2011 You deduct their cost on your 2014 Schedule F, Part I. State income tax forms 2011 Chickens, seeds, and young plants. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. State income tax forms 2011   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. State income tax forms 2011 You cannot also deduct the cost from the selling price. State income tax forms 2011   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. State income tax forms 2011 Deduct the cost of these seeds and plants through depletion allowances. State income tax forms 2011 For more information, see Depletion in chapter 7. State income tax forms 2011   The cost of chickens and plants used as food for your family is never deductible. State income tax forms 2011   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. State income tax forms 2011 These rules are discussed in chapter 6. State income tax forms 2011 Example. State income tax forms 2011 You use the cash method of accounting. State income tax forms 2011 In 2013, you buy 500 baby chicks to raise for resale in 2014. State income tax forms 2011 You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. State income tax forms 2011 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. State income tax forms 2011 Election to use crop method. State income tax forms 2011   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. State income tax forms 2011 You must get IRS approval to use the crop method. State income tax forms 2011 If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. State income tax forms 2011 For more information, see Crop method under Special Methods of Accounting in chapter 2. State income tax forms 2011 Choosing a method. State income tax forms 2011   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. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 For more information, see Change in Accounting Method in chapter 2. State income tax forms 2011 Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. State income tax forms 2011 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. State income tax forms 2011 Accounting fees. State income tax forms 2011 Advertising. State income tax forms 2011 Business travel and meals. State income tax forms 2011 Commissions. State income tax forms 2011 Consultant fees. State income tax forms 2011 Crop scouting expenses. State income tax forms 2011 Dues to cooperatives. State income tax forms 2011 Educational expenses (to maintain and improve farming skills). State income tax forms 2011 Farm-related attorney fees. State income tax forms 2011 Farm magazines. State income tax forms 2011 Ginning. State income tax forms 2011 Insect sprays and dusts. State income tax forms 2011 Litter and bedding. State income tax forms 2011 Livestock fees. State income tax forms 2011 Marketing fees. State income tax forms 2011 Milk assessment. State income tax forms 2011 Recordkeeping expenses. State income tax forms 2011 Service charges. State income tax forms 2011 Small tools expected to last one year or less. State income tax forms 2011 Stamps and stationery. State income tax forms 2011 Subscriptions to professional, technical, and trade journals that deal with farming. State income tax forms 2011 Tying material and containers. State income tax forms 2011 Loan expenses. State income tax forms 2011   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. State income tax forms 2011 Tax preparation fees. State income tax forms 2011   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. State income tax forms 2011 You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. State income tax forms 2011   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. State income tax forms 2011 Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. State income tax forms 2011 Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. State income tax forms 2011 Income from cooperatives. State income tax forms 2011   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. State income tax forms 2011 This deduction amount is reported on Form 1099-PATR, box 6. State income tax forms 2011 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. State income tax forms 2011 More information. State income tax forms 2011   For more information on the domestic production activities deduction, see the Instructions for Form 8903. State income tax forms 2011 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. State income tax forms 2011 You include the expense in the basis of the asset. State income tax forms 2011 Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. State income tax forms 2011 See chapters 2  and 6. State income tax forms 2011 Capital expenses are generally not deductible, but they may be depreciable. State income tax forms 2011 However, you can elect to deduct certain capital expenses, such as the following. State income tax forms 2011 The cost of fertilizer, lime, etc. State income tax forms 2011 (See Fertilizer and Lime under Deductible Expenses , earlier. State income tax forms 2011 ) Soil and water conservation expenses. State income tax forms 2011 (See chapter 5. State income tax forms 2011 ) The cost of property that qualifies for a deduction under section 179. State income tax forms 2011 (See chapter 7. State income tax forms 2011 ) Business start-up costs. State income tax forms 2011 (See Business start-up and organizational costs , later. State income tax forms 2011 ) Forestation and reforestation costs. State income tax forms 2011 (See Forestation and reforestation costs , later. State income tax forms 2011 ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. State income tax forms 2011 Land and buildings. State income tax forms 2011 Additions, alterations, and improvements to buildings, etc. State income tax forms 2011 Cars and trucks. State income tax forms 2011 Equipment and machinery. State income tax forms 2011 Fences. State income tax forms 2011 Draft, breeding, sport, and dairy livestock. State income tax forms 2011 Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. State income tax forms 2011 Water wells, including drilling and equipping costs. State income tax forms 2011 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. State income tax forms 2011 Business start-up and organizational costs. State income tax forms 2011   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. State income tax forms 2011 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. State income tax forms 2011 Any remaining costs must be amortized. State income tax forms 2011 See chapter 7. State income tax forms 2011   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. State income tax forms 2011 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). State income tax forms 2011 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State income tax forms 2011 9100-2” at the top of the amended return. State income tax forms 2011 File the amended return at the same address you filed the original return. State income tax forms 2011 The election applies when figuring taxable income for the current tax year and all subsequent years. State income tax forms 2011   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. State income tax forms 2011 For more information about start-up and organizational costs, see chapter 7. State income tax forms 2011 Crop production expenses. State income tax forms 2011   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. State income tax forms 2011 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. State income tax forms 2011 For more information, see Uniform Capitalization Rules in chapter 6. State income tax forms 2011 Timber. State income tax forms 2011   Capitalize the cost of acquiring timber. State income tax forms 2011 Do not include the cost of land in the cost of the timber. State income tax forms 2011 You must generally capitalize direct costs incurred in reforestation. State income tax forms 2011 However, you can elect to deduct some forestation and reforestation costs. State income tax forms 2011 See Forestation and reforestation costs next. State income tax forms 2011 Reforestation costs include the following. State income tax forms 2011 Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. State income tax forms 2011 The cost of seed or seedlings. State income tax forms 2011 Labor and tool expenses. State income tax forms 2011 Depreciation on equipment used in planting or seeding. State income tax forms 2011 Costs incurred in replanting to replace lost seedlings. State income tax forms 2011 You can choose to capitalize certain indirect reforestation costs. State income tax forms 2011   These capitalized amounts are your basis for the timber. State income tax forms 2011 Recover your basis when you sell the timber or take depletion allowances when you cut the timber. State income tax forms 2011 See Depletion in chapter 7. State income tax forms 2011 Forestation and reforestation costs. State income tax forms 2011   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. State income tax forms 2011 Any remaining costs can be amortized over an 84-month period. State income tax forms 2011 See chapter 7. State income tax forms 2011 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. State income tax forms 2011 The accounts should include all reforestation treatments and the dates they were applied. State income tax forms 2011 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. State income tax forms 2011 The timber account should be maintained until the timber is disposed of. State income tax forms 2011 For more information, see Notice 2006-47, 2006-20 I. State income tax forms 2011 R. State income tax forms 2011 B. State income tax forms 2011 892, available at  www. State income tax forms 2011 irs. State income tax forms 2011 gov/irb/2006-20_IRB/ar11. State income tax forms 2011 html. State income tax forms 2011   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. State income tax forms 2011 If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. State income tax forms 2011 If you are not filing Form T (Timber), attach a statement to your return with the following information. State income tax forms 2011 The unique stand identification numbers. State income tax forms 2011 The total number of acres reforested during the tax year. State income tax forms 2011 The nature of the reforestation treatments. State income tax forms 2011 The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. State income tax forms 2011   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). State income tax forms 2011 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State income tax forms 2011 9100-2” at the top of the amended return. State income tax forms 2011 File the amended return at the same address you filed the original return. State income tax forms 2011    For more information about forestation and reforestation costs, see chapter 7. State income tax forms 2011    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. State income tax forms 2011 You can view this publication on the Internet at  www. State income tax forms 2011 fs. State income tax forms 2011 fed. State income tax forms 2011 us/publications. State income tax forms 2011 Christmas tree cultivation. State income tax forms 2011   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. State income tax forms 2011 Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. State income tax forms 2011 For more information, see Timber Depletion under Depletion in chapter 7. State income tax forms 2011   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. State income tax forms 2011 Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. State income tax forms 2011   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. State income tax forms 2011 If the improvements do not have a determinable useful life, add their cost to the basis of the land. State income tax forms 2011 The cost is recovered when you sell or otherwise dispose of it. State income tax forms 2011 If the improvements have a determinable useful life, recover their cost through depreciation. State income tax forms 2011 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. State income tax forms 2011 Recover these costs through depreciation. State income tax forms 2011 Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. State income tax forms 2011 Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. State income tax forms 2011 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. State income tax forms 2011 Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. State income tax forms 2011 Other Nondeductible Items You cannot deduct the following items on your tax return. State income tax forms 2011 Loss of growing plants, produce, and crops. State income tax forms 2011   Losses of plants, produce, and crops raised for sale are generally not deductible. State income tax forms 2011 However, you may have a deductible loss on plants with a preproductive period of more than 2 years. State income tax forms 2011 See chapter 11 for more information. State income tax forms 2011 Repayment of loans. State income tax forms 2011   You cannot deduct the repayment of a loan. State income tax forms 2011 However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. State income tax forms 2011 See Interest , earlier. State income tax forms 2011 Estate, inheritance, legacy, succession, and gift taxes. State income tax forms 2011   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. State income tax forms 2011 Loss of livestock. State income tax forms 2011   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. State income tax forms 2011 Losses from sales or exchanges between related persons. State income tax forms 2011   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. State income tax forms 2011 For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. State income tax forms 2011 Cost of raising unharvested crops. State income tax forms 2011   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. State income tax forms 2011 Add these costs to the basis of the land to determine the gain or loss on the sale. State income tax forms 2011 For more information, see Section 1231 Gains and Losses in chapter 9. State income tax forms 2011 Cost of unharvested crops bought with land. State income tax forms 2011   Capitalize the purchase price of land, including the cost allocable to unharvested crops. State income tax forms 2011 You cannot deduct the cost of the crops at the time of purchase. State income tax forms 2011 However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. State income tax forms 2011 Cost related to gifts. State income tax forms 2011   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. State income tax forms 2011 The costs are not deductible in the year of the gift or any later year. State income tax forms 2011 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. State income tax forms 2011 Club dues and membership fees. State income tax forms 2011   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. State income tax forms 2011 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. State income tax forms 2011 Exception. State income tax forms 2011   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. State income tax forms 2011 Boards of trade. State income tax forms 2011 Business leagues. State income tax forms 2011 Chambers of commerce. State income tax forms 2011 Civic or public service organizations. State income tax forms 2011 Professional associations. State income tax forms 2011 Trade associations. State income tax forms 2011 Real estate boards. State income tax forms 2011 Fines and penalties. State income tax forms 2011   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. State income tax forms 2011 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. State income tax forms 2011 The amount of the loss you can deduct when figuring your taxable income may be limited. State income tax forms 2011 To figure your deductible loss, you must apply the following limits. State income tax forms 2011 The at-risk limits. State income tax forms 2011 The passive activity limits. State income tax forms 2011 The following discussions explain these limits. State income tax forms 2011 If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. State income tax forms 2011 See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. State income tax forms 2011 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. State income tax forms 2011 See Not-for-Profit Farming, later. State income tax forms 2011 At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. State income tax forms 2011 These rules limit the losses you can deduct when figuring your taxable income. State income tax forms 2011 The deductible loss from an activity is limited to the amount you have at risk in the activity. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 For more information, see Publication 925. State income tax forms 2011 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. State income tax forms 2011 Generally, a rental activity is a passive activity. State income tax forms 2011 If you have a passive activity, special rules limit the loss you can deduct in the tax year. State income tax forms 2011 You generally can deduct losses from passive activities only up to income from passive activities. State income tax forms 2011 Credits are similarly limited. State income tax forms 2011 For more information, see Publication 925. State income tax forms 2011 Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011 Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. State income tax forms 2011 Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. State income tax forms 2011 For more details, see IRC section 461(j). State income tax forms 2011 Excess farm loss. State income tax forms 2011   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). State income tax forms 2011 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. State income tax forms 2011   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. State income tax forms 2011 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. State income tax forms 2011 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). State income tax forms 2011 Also, there is a limit on the deductions you can take. State income tax forms 2011 You cannot use a loss from that activity to offset income from other activities. State income tax forms 2011 Activities you do as a hobby, or mainly for sport or recreation, come under this limit. State income tax forms 2011 An investment activity intended only to produce tax losses for the investors also comes under this limit. State income tax forms 2011 The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. State income tax forms 2011 It does not apply to corporations other than S corporations. State income tax forms 2011 In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. State income tax forms 2011 No one factor alone is decisive. State income tax forms 2011 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. State income tax forms 2011 Presumption of profit. State income tax forms 2011   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. State income tax forms 2011 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. State income tax forms 2011 The activity must be substantially the same for each year within this period. State income tax forms 2011 You have a profit when the gross income from an activity is more than the deductions for it. State income tax forms 2011   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. State income tax forms 2011   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. State income tax forms 2011 This means the limits discussed here do not apply. State income tax forms 2011 You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. State income tax forms 2011 You can rely on this presumption in every case, unless the IRS shows it is not valid. State income tax forms 2011   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. State income tax forms 2011 Using the presumption later. State income tax forms 2011   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. State income tax forms 2011   You can choose to do this by filing Form 5213. State income tax forms 2011 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. State income tax forms 2011 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. State income tax forms 2011   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. State income tax forms 2011 Accordingly, it will not limit your deductions. State income tax forms 2011 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. State income tax forms 2011 If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. State income tax forms 2011 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. State income tax forms 2011   Filing Form 5213 automatically extends the period of limitations on any year