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

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Hawaii Department of Commerce and Consumer Affairs - Wailuku

Website: Hawaii Department of Commerce and Consumer Affairs - Wailuku

Address: Hawaii Department of Commerce and Consumer Affairs - Wailuku
Office of Consumer Protection
1063 Lower Main St., Suite C-216
Wailuku, HI 96793

Phone Number: 808-243-4648 808-587-3222 (Consumer Resource Center)

Hawaii Department of Commerce and Consumer Affairs- Hilo

Website: Hawaii Department of Commerce and Consumer Affairs- Hilo

Address: Hawaii Department of Commerce and Consumer Affairs- Hilo
Office of Consumer Protection
345 Kekuanaoa St., Suite 12
Hilo, HI 96720

Phone Number: 808-933-0910 808-587-3222 (Consumer Resource Center)

Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)

Website: Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)

Address: Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)
Office of Consumer Protection
Leiopapa A Kamehameha Building
235 S. Beretania St., Suite 801

Honolulu, HI 96813

Phone Number: 808-586-2630 808-587-3222 (Consumer Resource Center)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Division of Financial Institutions
PO Box 2054
Honolulu, HI 96805

Phone Number: 808-586-2820
808-274-3141 (Kauai) 808-984-2400 (Maui) 808-974-4000 (Hawaii)

Toll-free: 1-800-468-4644

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Insurance Division
PO Box 3614
Honolulu, HI 96811

Phone Number: 808-586-2790

Toll-free: 1-800-468-4644 (Lanai and Molokai)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Business Registration Division
Securities Enforcement Branch

PO Box 40
Honolulu, HI 96810

Phone Number: 808-586-2744

Toll-free: 1-877-447-2267

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Utilities Commission

Website: Public Utilities Commission

Address: Public Utilities Commission
465 S. King St., Room 103
Honolulu, HI 96813

Phone Number: 808-586-2020

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The Taxes State

Taxes state Publication 584SP - Introductory Material Table of Contents Qué Hay de Nuevo Introduction Qué Hay de Nuevo Acontecimientos futuros. Taxes state  El IRS ha diseñado una página en el Internet, www. Taxes state irs. Taxes state gov/pub584sp, que incluye información sobre la Publicación 584(SP). Taxes state Toda información sobre desarrollos futuros que afecten la Publicación 584(SP) (como legislación aprobada después de que la publicación haya sido publicada) será anunciada en esta página. Taxes state Introduction Este registro se ha creado para ayudarlo a determinar la cantidad de una pérdida ocasionada por un desastre, hecho fortuito o robo que esté relacionada con propiedad de uso personal. Taxes state Contiene anexos para ayudarlo a calcular el valor de la pérdida de su residencia principal, de toda propiedad contenida dentro de la misma y de sus vehículos motorizados. Taxes state Sin embargo, estos anexos sólo son para su información. Taxes state Tiene que completar el Formulario 4684, Casualties and Thefts (Hechos Fortuitos y Robos), en inglés, para declarar su pérdida. Taxes state Prev  Up  Next   Home   More Online Publications