File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Tax Volunteer

Www.state Tax FormsTax Forms Download Ez 1040Amended 1040 EzTaxes Online 1040ezState Tax FileFile Free State TaxesTax Form 20101040ez Form 2012Free Online State Tax Filing Only2011 Ez FormHow To Fill Out 1040x Line By LineFiling Late Taxes For 20111040ez Turbotax FreeH&r Block Free Online Tax Filing1040ez Instruction BookFederal Tax Forms1040x How ToFile 2012 Taxes Late Online1040ez Instruction BookTax 1040ezState Tax FormsHow To File A 1040 EzForm 1040x Amended ReturnH&rblockHow Do I File An Amended ReturnAmend My TaxesExtension FormVolunteer Income TaxHow To File State Taxes Free2014 1040 Ez Tax Form2010 Irs Form 1040ezFile Taxes For FreeSc Tax Forms 1040ezAmendment TaxFile 2007 Taxes1040ez Electronic FilingForm 1040aAmend 2008 TaxesHow To File Only State Taxes For FreeIrs1040ezform

Tax Volunteer

Tax volunteer 5. Tax volunteer   Student Loan Cancellations and Repayment Assistance Table of Contents Introduction Student Loan CancellationQualifying Loans Student Loan Repayment Assistance Introduction Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. Tax volunteer However, if you fulfill certain requirements, two types of student loan assistance may be tax free. Tax volunteer The types of assistance discussed in this chapter are: Student loan cancellation, and Student loan repayment assistance. Tax volunteer Student Loan Cancellation If your student loan is canceled, you may not have to include any amount in income. Tax volunteer This section describes the requirements for tax-free treatment of canceled student loans. Tax volunteer Qualifying Loans To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work: For a certain period of time, In certain professions, and For any of a broad class of employers. Tax volunteer The cancellation of your loan will not qualify for tax-free treatment if it is cancelled because of services you performed for the educational institution that made the loan or other organization that provided the funds. Tax volunteer See Exception, later. Tax volunteer Eligible educational institution. Tax volunteer   This is an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax volunteer Qualified lenders. Tax volunteer   These include the following. Tax volunteer The United States, or an instrumentality thereof. Tax volunteer A state, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof. Tax volunteer A public benefit corporation that is tax-exempt under section 501(c)(3); and that has assumed control of a state, county, or municipal hospital; and whose employees are considered public employees under state law. Tax volunteer An eligible educational institution, if the loan is made: As part of an agreement with an entity described in (1), (2), (3) under which the funds to make the loan were provided to the educational institution, or Under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs where the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Tax volunteer   Occupations with unmet needs include medicine, nursing, teaching, and law. Tax volunteer Section 501(c)(3) organization. Tax volunteer   This is any corporation, community chest, fund, or foundation organized and operated exclusively for one or more of the following purposes. Tax volunteer Charitable. Tax volunteer Religious. Tax volunteer Educational. Tax volunteer Scientific. Tax volunteer Literary. Tax volunteer Testing for public safety. Tax volunteer Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment). Tax volunteer The prevention of cruelty to children or animals. Tax volunteer Exception. Tax volunteer   The cancellation of your loan does not qualify as tax-free student loan cancellation if your student loan was made by an educational institution and is canceled because of services you performed for the educational institution or other organization that provided the funds. Tax volunteer Refinanced Loan If you refinanced a student loan with another loan from an eligible educational institution or a tax-exempt organization, that loan may also be considered as made by a qualified lender. Tax volunteer The refinanced loan is considered made by a qualified lender if it is made under a program of the refinancing organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs where the services required of the students are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Tax volunteer Student Loan Repayment Assistance Student loan repayments made to you are tax free if you received them for any of the following: The National Health Service Corps (NHSC) Loan Repayment Program (NHSC Loan Repayment Program). Tax volunteer A state education loan repayment program eligible for funds under the Public Health Service Act. Tax volunteer Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in under served or health professional shortage areas (as determined by such state). Tax volunteer You cannot deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. Tax volunteer Prev  Up  Next   Home   More Online Publications
Español

Public Safety and Law: Online Services

Safety and legal resources to include agencies and orgainizations, grants, news, procurement, statistics, and terrorism.

The Tax Volunteer

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