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File my state taxes for free Publication 584 - Additional Material Table of Contents This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Entrance Hall This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Living Room This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Dining Room This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Kitchen This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Den This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Bedrooms This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Bathrooms This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Recreation Room This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Laundry and Basement This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Garage This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Sporting Equipment This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Men's Clothing This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Women's Clothing This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Children's Clothing This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Jewelry This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Electrical Appliances This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Linens This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Miscellaneous This image is too large to be displayed in the current screen. File my state taxes for free Please click the link to view the image. File my state taxes for free Motor Vehicles Schedule 20. File my state taxes for free Home (Excluding Contents) Note. File my state taxes for free If you used the entire property as your home, fill out only column (a). File my state taxes for free If you used part of the property as your home and part of it for business or to produce rental income, you must allocate the entries on lines 2-9 between the personal part (column (a)) and the business/rental part (column (b)). File my state taxes for free 1. File my state taxes for free Description of property (Show location and date acquired. File my state taxes for free )     (a)  Personal Part (b)  Business/Rental Part 2. File my state taxes for free Cost or other (adjusted) basis of property (from Worksheet A)     3. File my state taxes for free Insurance or other reimbursement Note. File my state taxes for free If line 2 is more than line 3, skip line 4. File my state taxes for free If line 3 is more than line 2, you exclude gain, and the gain is more than you can exclude, see the instructions for line 3 in the Instructions for Form 4684 for the amount to enter. File my state taxes for free     4. File my state taxes for free Gain from casualty. File my state taxes for free If line 3 is more than line 2, enter the difference here and skip lines 5 through 9. File my state taxes for free But see Next below line 9. File my state taxes for free     5. File my state taxes for free Fair market value before casualty     6. File my state taxes for free Fair market value after casualty     7. File my state taxes for free Decrease in fair market value. File my state taxes for free Subtract line 6 from line 5. File my state taxes for free     8. File my state taxes for free Enter the smaller of line 2 or line 7 Note for business/rental part. File my state taxes for free If the property was totally destroyed by casualty, enter on line 8, column (b) the amount from line 2, column (b). File my state taxes for free     9. File my state taxes for free Subtract line 3 from line 8. File my state taxes for free If zero or less, enter -0-. File my state taxes for free     Next: Transfer the entries from line 1 and lines 2-9, column (a), above to the corresponding lines on Form 4684, Section A. File my state taxes for free Transfer the entries from line 1 and lines 2-9, column (b), to the corresponding lines on Form 4684, Section B. File my state taxes for free Worksheet A. File my state taxes for free Cost or Other (Adjusted) Basis Caution. File my state taxes for free See the Worksheet A Instructions before you use this worksheet. File my state taxes for free         (a) Personal Part (b) Business/Rental Part 1. File my state taxes for free   Enter the purchase price of the home damaged or destroyed. File my state taxes for free (If you filed Form 2119 when you originally acquired that home to postpone gain on the sale of a previous home before May 7, 1997, enter the adjusted basis of the new home from that Form 2119. File my state taxes for free ) 1. File my state taxes for free     2. File my state taxes for free   Seller paid points for home bought after 1990. File my state taxes for free Do not include any seller-paid points you already subtracted to arrive at the amount entered on line 1 2. File my state taxes for free     3. File my state taxes for free   Subtract line 2 from line 1 3. File my state taxes for free     4. File my state taxes for free   Settlement fees or closing costs. File my state taxes for free (See Settlement costs in Publication 551. File my state taxes for free ) If line 1 includes the adjusted basis of the new home from Form 2119, skip lines 4a-4g and 5; go to line 6. File my state taxes for free         a. File my state taxes for free Abstract and recording fees 4a. File my state taxes for free       b. File my state taxes for free Legal fees (including fees for title search and preparing documents) 4b. File my state taxes for free       c. File my state taxes for free Survey fees 4c. File my state taxes for free       d. File my state taxes for free Title insurance 4d. File my state taxes for free       e. File my state taxes for free Transfer or stamp taxes 4e. File my state taxes for free       f. File my state taxes for free Amounts that the seller owed that you agreed to pay (back taxes or interest, recording or mortgage fees, and sales commissions) 4f. File my state taxes for free       g. File my state taxes for free Other 4g. File my state taxes for free     5. File my state taxes for free   Add lines 4a through 4g 5. File my state taxes for free     6. File my state taxes for free   Cost of additions and improvements. File my state taxes for free (See Increases to Basis in Publication 551. File my state taxes for free ) Do not include any additions and improvements included on line 1 6. File my state taxes for free     7. File my state taxes for free   Special tax assessments paid for local improvements, such as streets and sidewalks 7. File my state taxes for free     8. File my state taxes for free   Other increases to basis 8. File my state taxes for free     9. File my state taxes for free   Add lines 3, 5, 6, 7, and 8 9. File my state taxes for free     10. File my state taxes for free   Depreciation allowed or allowable, related to the business use or rental of the home 10. File my state taxes for free 0   11. File my state taxes for free   Other decreases to basis (See Decreases to Basis in Publication 551. File my state taxes for free ) 11. File my state taxes for free     12. File my state taxes for free   Add lines 10 and 11 12. File my state taxes for free     13. File my state taxes for free   Cost or other (adjusted) basis of home damaged or destroyed. File my state taxes for free Subtract line 12 from line 9. File my state taxes for free Enter here and on Schedule 20, line 2 13. File my state taxes for free     Worksheet A Instructions. File my state taxes for free If you use Worksheet A to figure the cost or other (adjusted) basis of your home, follow these instructions. File my state taxes for free DO NOT use this worksheet to determine your basis if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939. File my state taxes for free IF. File my state taxes for free . File my state taxes for free . File my state taxes for free   THEN. File my state taxes for free . File my state taxes for free . File my state taxes for free you inherited your home from a decedent who died either before or after 2010 or from a decedent who died in 2010 and whose executor did not file Form 8939. File my state taxes for free 1 skip lines 1–4 of the worksheet. File my state taxes for free 2 find your basis using the rules under Inherited Property in Publication 551. File my state taxes for free Enter this amount on line 5 of the worksheet. File my state taxes for free 3 fill out lines 6–13 of the worksheet. File my state taxes for free you received your home as a gift 1 read Property Received as a Gift in Publication 551 and enter on lines 1 and 3 of the worksheet either the donor's adjusted basis or the home's fair market value at the time of the gift, whichever is appropriate. File my state taxes for free 2 if you can add any federal gift tax to your basis, enter that amount on line 5 of the worksheet. File my state taxes for free 3 fill out the rest of the worksheet. File my state taxes for free you received your home as a trade for other property 1 enter on line 1 of the worksheet the fair market value of the other property at the time of the trade. File my state taxes for free (But if you received your home as a trade for your previous home before May 7, 1997, and had a gain on the trade that you postponed using Form 2119, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. File my state taxes for free ) 2 fill out the rest of the worksheet. File my state taxes for free you built your home 1 add the purchase price of the land and the cost of building the home. File my state taxes for free Enter that total on line 1 of the worksheet. File my state taxes for free (However, if you filed a Form 2119 to postpone gain on the sale of a previous home before May 7, 1997, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. File my state taxes for free ) 2 fill out the rest of the worksheet. File my state taxes for free you received your home from your spouse after July 18, 1984 1 skip lines 1–4 of the worksheet. File my state taxes for free 2 enter on line 5 of the worksheet your spouse's cost or other (adjusted) basis in the home just before you received it. File my state taxes for free 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. File my state taxes for free you owned a home jointly with your spouse, who transferred his or her interest in the home to you after July 18, 1984     fill out one worksheet, making adjustments to basis for events both before and after the transfer. File my state taxes for free   you received your home from your spouse before July 19, 1984 1 skip lines 1–4 of the worksheet. File my state taxes for free 2 enter on line 5 of the worksheet the home's fair market value at the time you received it. File my state taxes for free 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. File my state taxes for free you owned a home jointly with your spouse, and your spouse transferred his or her interest in the home to you before July 19, 1984 1 fill out a worksheet, lines 1–13, making adjustments to basis only for events before the transfer. File my state taxes for free 2 multiply the amount on line 13 of that worksheet by 50% (0. File my state taxes for free 50) to get the adjusted basis of your half-interest at the time of the transfer. File my state taxes for free 3 multiply the fair market value of the home at the time of the transfer by 50% (0. File my state taxes for free 50). File my state taxes for free Generally, this is the basis of the half-interest that your spouse owned. File my state taxes for free 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. File my state taxes for free 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after the transfer. File my state taxes for free you owned your home jointly with a nonspouse 1 fill out lines 1–13 of the worksheet. File my state taxes for free 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest. File my state taxes for free Worksheet A Instructions. File my state taxes for free (Continued) IF. File my state taxes for free . File my state taxes for free . File my state taxes for free   THEN. File my state taxes for free . File my state taxes for free . File my state taxes for free you owned your home jointly with your spouse who died before 2010 and before the casualty 1 fill out a worksheet, lines 1–13, including adjustments to basis only for events before your spouse's death. File my state taxes for free 2 multiply the amount on line 13 of that worksheet by 50% (0. File my state taxes for free 50) to get the adjusted basis of your half-interest on the date of death. File my state taxes for free 3 figure the basis for the half-interest owned by your spouse. File my state taxes for free This is one-half of the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax). File my state taxes for free (The basis in your half will remain one-half of the adjusted basis determined in step 2. File my state taxes for free ) 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. File my state taxes for free 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after your spouse's death. File my state taxes for free you owned your home jointly with your spouse who died before 2010 and before the casualty, and your permanent legal home is in a community property state 1 skip lines 1–4 of the worksheet. File my state taxes for free 2 enter the amount of your basis on line 5 of the worksheet. File my state taxes for free Generally, this is the fair market value of the home at the time of death. File my state taxes for free (But see Community Property in Publication 551 for special rules. File my state taxes for free ) 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after your spouse's death. File my state taxes for free you owned your home jointly with a nonspouse who died before 2010 and before the casualty 1 fill out lines 1–13 of the worksheet, including adjustments to basis only for events before the co-owner's death. File my state taxes for free 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest on the date of death. File my state taxes for free 3 multiply the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax) by the co-owner's percentage of ownership. File my state taxes for free This is the basis for the co-owner's part-interest. File my state taxes for free 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. File my state taxes for free 5 complete lines 6–13 of the second worksheet, including adjustments to basis only for events after the co-owner's death. File my state taxes for free your home was ever damaged as a result of a prior casualty 1 on line 8 of the worksheet, enter any amounts you spent to restore the home to its condition before the prior casualty. File my state taxes for free 2 on line 11 enter: any insurance reimbursements you received (or expect to receive) for the prior loss,  and any deductible casualty losses from prior years not covered by insurance. File my state taxes for free the person who sold you your home paid points on your loan and you bought your home after 1990 but before April 4, 1994. File my state taxes for free   on line 2 enter the seller-paid points only if you deducted them as home mortgage interest in the year paid (unless you used the seller-paid points to reduce the amount on line 1). File my state taxes for free the person who sold you your home paid points on your loan and you bought your home after April 3, 1994   on line 2 enter the seller-paid points even if you did not deduct them (unless you used the seller-paid points to reduce the amount on line 1). File my state taxes for free you used part of the property as your home and part of it for business or to produce rental income   you must allocate the entries on Worksheet A between the personal part (column (a)) and the business/rental part (column (b)). File my state taxes for free none of these items apply   fill out the entire worksheet. File my state taxes for free Prev  Up  Next   Home   More Online Publications
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The File My State Taxes For Free

File my state taxes for free 2. File my state taxes for free   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. File my state taxes for free You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. File my state taxes for free This chapter discusses accounting methods. File my state taxes for free For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. File my state taxes for free Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. File my state taxes for free Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. File my state taxes for free Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. File my state taxes for free A material item is one that affects the proper time for inclusion of income or allowance of a deduction. File my state taxes for free An item considered material for financial statement purposes is generally also considered material for income tax purposes. File my state taxes for free See Publication 538 for more information. File my state taxes for free You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. File my state taxes for free If you later want to change your accounting method, you generally must get IRS approval. File my state taxes for free How to obtain IRS approval is discussed later under Changes in Methods of Accounting . File my state taxes for free Types of accounting methods. File my state taxes for free   Generally, you can use any of the following accounting methods. File my state taxes for free Each method is discussed in detail below. File my state taxes for free Cash method. File my state taxes for free Accrual method. File my state taxes for free Special methods of accounting for certain items of income and expenses. File my state taxes for free Combination (hybrid) method using elements of two or more of the above. File my state taxes for free Business and other items. File my state taxes for free   You can account for business and personal items using different accounting methods. File my state taxes for free For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. File my state taxes for free Two or more businesses. File my state taxes for free   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. File my state taxes for free Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. File my state taxes for free Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. File my state taxes for free However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. File my state taxes for free See Accrual Method Required , later. File my state taxes for free Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. File my state taxes for free Items of income include money received as well as property or services received. File my state taxes for free If you receive property or services, you must include the fair market value (FMV) of the property or services in income. File my state taxes for free See chapter 3 for information on how to report farm income on your income tax return. File my state taxes for free Constructive receipt. File my state taxes for free   Income is constructively received when an amount is credited to your account or made available to you without restriction. File my state taxes for free You do not need to have possession of the income for it to be treated as income for the tax year. File my state taxes for free If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. File my state taxes for free Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. File my state taxes for free Direct payments and counter-cyclical payments. File my state taxes for free   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. File my state taxes for free Delaying receipt of income. File my state taxes for free   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. File my state taxes for free You must report the income in the year the money or property is received or made available to you without restriction. File my state taxes for free Example. File my state taxes for free Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. File my state taxes for free She was told in December that her payment was available. File my state taxes for free She requested not to be paid until January 2014. File my state taxes for free However, she must still include this payment in her 2013 income because it was made available to her in 2013. File my state taxes for free Debts paid by another person or canceled. File my state taxes for free   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. File my state taxes for free If you receive income in this way, you constructively receive the income when the debt is canceled or paid. File my state taxes for free See Cancellation of Debt in chapter 3. File my state taxes for free Deferred payment contract. File my state taxes for free   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. File my state taxes for free However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. File my state taxes for free Example. File my state taxes for free You are a farmer who uses the cash method and a calendar tax year. File my state taxes for free You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. File my state taxes for free You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. File my state taxes for free However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. File my state taxes for free Repayment of income. File my state taxes for free   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. File my state taxes for free If the repayment is more than $3,000, a special rule applies. File my state taxes for free For details, see Repayments in chapter 11 of Publication 535, Business Expenses. File my state taxes for free Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. File my state taxes for free This includes business expenses for which you contest liability. File my state taxes for free However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. File my state taxes for free See chapter 4 for information on how to deduct farm business expenses on your income tax return. File my state taxes for free Prepayment. File my state taxes for free   Generally, you cannot deduct expenses paid in advance. File my state taxes for free This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. File my state taxes for free Example. File my state taxes for free On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. File my state taxes for free In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. File my state taxes for free In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. File my state taxes for free An exception applies if the expense qualifies for the 12-month rule. File my state taxes for free See Publication 538 for more information and examples. File my state taxes for free See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. File my state taxes for free Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. File my state taxes for free The purpose of an accrual method of accounting is to correctly match income and expenses. File my state taxes for free Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. File my state taxes for free See Accrual Method Required and Farm Inventory , later. File my state taxes for free Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. File my state taxes for free Under this rule, include an amount in income on the earliest of the following dates. File my state taxes for free When you receive payment. File my state taxes for free When the income amount is due to you. File my state taxes for free When you earn the income. File my state taxes for free When title passes. File my state taxes for free If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. File my state taxes for free Inventory. File my state taxes for free   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. File my state taxes for free An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. File my state taxes for free See Publication 538 for more information. File my state taxes for free Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. File my state taxes for free Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. File my state taxes for free The all-events test has been met. File my state taxes for free This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. File my state taxes for free Economic performance has occurred. File my state taxes for free Economic performance. File my state taxes for free   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. File my state taxes for free If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. File my state taxes for free If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. File my state taxes for free Example. File my state taxes for free Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. File my state taxes for free She entered into a contract with ABC Farm Consulting in 2012. File my state taxes for free The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. File my state taxes for free It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. File my state taxes for free Jane paid ABC Farm Consulting $2,000 in December 2012. File my state taxes for free Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. File my state taxes for free Economic performance for Jane's liability in the contract occurs as the services are provided. File my state taxes for free Jane incurs the $2,000 cost in 2013. File my state taxes for free An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. File my state taxes for free For more information, see Economic Performance in Publication 538. File my state taxes for free Special rule for related persons. File my state taxes for free   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. File my state taxes for free Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. File my state taxes for free For more information, see Internal Revenue Code section 267. File my state taxes for free Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. File my state taxes for free A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. File my state taxes for free A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. File my state taxes for free A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. File my state taxes for free A tax shelter. File my state taxes for free Note. File my state taxes for free Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). File my state taxes for free Family corporation. File my state taxes for free   A family corporation is generally a corporation that meets one of the following ownership requirements. File my state taxes for free Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. File my state taxes for free Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. File my state taxes for free Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. File my state taxes for free For more information on family corporations, see Internal Revenue Code section 447. File my state taxes for free Tax shelter. File my state taxes for free   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. File my state taxes for free Its principal purpose is the avoidance or evasion of federal income tax. File my state taxes for free It is a farming syndicate. File my state taxes for free A farming syndicate is an entity that meets either of the following tests. File my state taxes for free Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. File my state taxes for free More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. File my state taxes for free   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. File my state taxes for free   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. File my state taxes for free Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. File my state taxes for free This record should show the actual count or measurement of the inventory. File my state taxes for free It should also show all factors that enter into its valuation, including quality and weight, if applicable. File my state taxes for free Hatchery business. File my state taxes for free   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. File my state taxes for free Products held for sale. File my state taxes for free   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. File my state taxes for free , must be included in inventory. File my state taxes for free Supplies. File my state taxes for free   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. File my state taxes for free Deduct the cost of supplies in the year used or consumed in operations. File my state taxes for free Do not include incidental supplies in inventory as these are deductible in the year of purchase. File my state taxes for free Livestock. File my state taxes for free   Livestock held primarily for sale must be included in inventory. File my state taxes for free Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. File my state taxes for free See also Unit-livestock-price method , later. File my state taxes for free If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. File my state taxes for free Growing crops. File my state taxes for free   Generally, growing crops are not required to be included in inventory. File my state taxes for free However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. File my state taxes for free See Uniform capitalization rules below. File my state taxes for free Also see Uniform Capitalization Rules in  chapter 6. File my state taxes for free Items to include in inventory. File my state taxes for free   Your inventory should include all items held for sale, or for use as feed, seed, etc. File my state taxes for free , whether raised or purchased, that are unsold at the end of the year. File my state taxes for free Uniform capitalization rules. File my state taxes for free   The following applies if you are required to use an accrual method of accounting. File my state taxes for free The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. File my state taxes for free The costs of animals are subject to the uniform capitalization rules. File my state taxes for free Inventory valuation methods. File my state taxes for free   The following methods, described below, are those generally available for valuing inventory. File my state taxes for free The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. File my state taxes for free Cost. File my state taxes for free Lower of cost or market. File my state taxes for free Farm-price method. File my state taxes for free Unit-livestock-price method. File my state taxes for free Cost and lower of cost or market methods. File my state taxes for free   See Publication 538 for information on these valuation methods. File my state taxes for free If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. File my state taxes for free However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. File my state taxes for free Farm-price method. File my state taxes for free   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. File my state taxes for free Market price is the current price at the nearest market in the quantities you usually sell. File my state taxes for free Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. File my state taxes for free If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. File my state taxes for free Unit-livestock-price method. File my state taxes for free   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. File my state taxes for free You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. File my state taxes for free The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. File my state taxes for free Unit prices and classifications are subject to approval by the IRS on examination of your return. File my state taxes for free You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. File my state taxes for free IRS approval is not required for these adjustments. File my state taxes for free Any other changes in unit prices or classifications do require IRS approval. File my state taxes for free   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. File my state taxes for free This method accounts only for the increase in cost of raising an animal to maturity. File my state taxes for free It does not provide for any decrease in the animal's market value after it reaches maturity. File my state taxes for free Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. File my state taxes for free   Do not include sold or lost animals in the year-end inventory. File my state taxes for free If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. File my state taxes for free The animals on hand at the end of the year are considered those most recently acquired. File my state taxes for free   You must include in inventory all livestock purchased primarily for sale. File my state taxes for free You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. File my state taxes for free However, you must be consistent from year to year, regardless of the method you have chosen. File my state taxes for free You cannot change your method without obtaining approval from the IRS. File my state taxes for free   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. File my state taxes for free If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. File my state taxes for free However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. File my state taxes for free This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. File my state taxes for free It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. File my state taxes for free Uniform capitalization rules. File my state taxes for free   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. File my state taxes for free This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. File my state taxes for free Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. File my state taxes for free Example 1. File my state taxes for free You are a farmer who uses an accrual method of accounting. File my state taxes for free You keep your books on the calendar year basis. File my state taxes for free You sell grain in December 2013 but you are not paid until January 2014. File my state taxes for free Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. File my state taxes for free Example 2. File my state taxes for free Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. File my state taxes for free Under this method, you include the sales proceeds in income for 2014, the year you receive payment. File my state taxes for free Deduct the costs of producing the grain in the year you pay for them. File my state taxes for free Special Methods of Accounting There are special methods of accounting for certain items of income and expense. File my state taxes for free Crop method. File my state taxes for free   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. File my state taxes for free You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. File my state taxes for free Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. File my state taxes for free    See chapter 4 for details on deducting the costs of operating a farm. File my state taxes for free Also see Regulations section 1. File my state taxes for free 162-12. File my state taxes for free Other special methods. File my state taxes for free   Other special methods of accounting apply to the following items. File my state taxes for free Amortization, see chapter 7. File my state taxes for free Casualties, see chapter 11. File my state taxes for free Condemnations, see chapter 11. File my state taxes for free Depletion, see chapter 7. File my state taxes for free Depreciation, see chapter 7. File my state taxes for free Farm business expenses, see chapter 4. File my state taxes for free Farm income, see chapter 3. File my state taxes for free Installment sales, see chapter 10. File my state taxes for free Soil and water conservation expenses, see chapter 5. File my state taxes for free Thefts, see chapter 11. File my state taxes for free Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. File my state taxes for free However, the following restrictions apply. File my state taxes for free If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. File my state taxes for free If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. File my state taxes for free Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). File my state taxes for free Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. File my state taxes for free You may also have to pay a fee. File my state taxes for free To obtain approval, you must generally file Form 3115. File my state taxes for free There are instances when you can obtain automatic consent to change certain methods of accounting. File my state taxes for free See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. File my state taxes for free For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. File my state taxes for free Also see Publication 538. File my state taxes for free Prev  Up  Next   Home   More Online Publications