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Tax Software 1040nr

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Tax Software 1040nr

Tax software 1040nr Publication 534 - Introductory Material Table of Contents Important Change for 1995 Introduction How To Use This Publication Important Change for 1995 Major changes to Publications 534 and 946. Tax software 1040nr  This publication, as well as Publication 946,How To Depreciate Property, has been changed. Tax software 1040nr Publication 534 has been shortened. Tax software 1040nr It no longer contains general information on MACRS and the section 179 deduction. Tax software 1040nr It contains a discussion of the accelerated cost recovery system (ACRS), the ACRS Percentage Tables, a discussion of other methods of depreciation, and a limited discussion of listed property. Tax software 1040nr We expanded Publication 946 by adding material taken from Publication 534. Tax software 1040nr We added more detail to the discussions of the section 179 deduction, the modified accelerated cost recovery system (MACRS), and listed property. Tax software 1040nr We replaced the partialMACRS Percentage Tables with the complete ones from Publication 534. Tax software 1040nr We also added the Table of Class Lives and Recovery Periods from Publication 534. Tax software 1040nr We made these changes to eliminate most of the duplication that existed in the two publications. Tax software 1040nr This will save money and make it easier for you to decide which publication you need. Tax software 1040nr Use this publication to figure depreciation on property you placed in service before 1987; use Publication 946 to figure depreciation on property you placed in service after 1986. Tax software 1040nr Introduction The law allows you to recover your cost in business or income-producing property through yearly tax deductions. Tax software 1040nr You do this by depreciating your property, that is, by deducting some of your cost on your tax return each year. Tax software 1040nr You can depreciate both tangible property, such as a car, building, or machinery, and certain intangible property, such as a copyright or a patent. Tax software 1040nr The amount you can deduct depends on: How much the property cost, When you began using it, How long it will take to recover your cost, and Which of several depreciation methods you use. Tax software 1040nr Depreciation defined. Tax software 1040nr   Depreciation is a loss in the value of property over the time the property is being used. Tax software 1040nr Events that can cause property to depreciate include wear and tear, age, deterioration, and obsolescence. Tax software 1040nr You can get back your cost of certain property, such as equipment you use in your business or property used for the production of income by taking deductions for depreciation. Tax software 1040nr Black's Law Dictionary Amortization. Tax software 1040nr   Amortization is similar to depreciation. Tax software 1040nr Using amortization, you can recover your cost or basis in certain property proportionately over a specific number of years or months. Tax software 1040nr Examples of costs you can amortize are the costs of starting a business, reforestation, and pollution control facilities. Tax software 1040nr You can find information on amortization inchapter 12 of Publication 535, Business Expenses. Tax software 1040nr Alternative minimum tax. Tax software 1040nr   If you use accelerated depreciation for real property, or personal property that is leased to others, you may be liable for the alternative minimum tax. Tax software 1040nr Accelerated depreciation is any method, that allows recovery at a faster rate in the earlier years than the straight line method. Tax software 1040nr For more information, you may wish to see the following: Form 6251, Alternative Minimum Tax-Individuals, and Publication 542, Tax Information on Corporations. Tax software 1040nr Ordering publications and forms. Tax software 1040nr   To order free publications and forms, 1-800-TAX-FORM (1-800-829-3676). Tax software 1040nr You can also write to the IRS Forms Distribution Center nearest you. Tax software 1040nr Check your income tax package for the address. Tax software 1040nr   If you have access to a personal computer and a modem, you can also get many forms and publications electronically. Tax software 1040nr See How To Get Forms and Publications in your income tax package for details. Tax software 1040nr Telephone help. Tax software 1040nr   You can call the IRS with your tax question Monday through Friday during regular business hours. Tax software 1040nr Check your telephone book for the local number or you can call1-800-829-1040. Tax software 1040nr Telephone help for hearing-impaired persons. Tax software 1040nr   If you have access to TDD equipment, you can call 1-800-829-4059 with your tax question or to order forms and publications. Tax software 1040nr See your tax package for the hours of operation. Tax software 1040nr How To Use This Publication This publication describes the kinds of property that can be depreciated and the methods used to figure depreciation on property placed in service before 1987. Tax software 1040nr It is divided into three chapters and contains an appendix. Tax software 1040nr Chapter 1 explains the rules for depreciating property under the Accelerated Cost Recovery System (ACRS). Tax software 1040nr Chapter 2 explains the rules for depreciating property first used before 1981. Tax software 1040nr Chapter 3 explains the rules for listed property. Tax software 1040nr Also this chapter defines listed property. Tax software 1040nr The appendix contains the ACRS Percentage Tables. Tax software 1040nr Prev  Up  Next   Home   More Online Publications
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The Tax Software 1040nr

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