2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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But you cannot make this election for the ously used the standard mileage rate for For details, see Pub. 225. costs of planting or growing citrus or al- that vehicle. mond groves that are incurred before the You can take the standard mileage rate end of the 4th tax year beginning with the for 2004 only if you: Line 15 tax year you planted them in their permanent grove. By deducting the preproductive • Owned the vehicle and use the stan- Enter amounts paid for custom hire or madard mileage rate for the first year you period expenses for which you can make chine work (the machine operator furplaced the vehicle in service or this election, you are treated as having nished the equipment). made the election. • Leased the vehicle and are using the standard mileage rate for the entire lease Do not include amounts paid for rental In the case of a partnership or S period (except the period, if any, before or lease of equipment that you operated corporation, the election must 1998). yourself. Instead, report those amounts on be made by the partner or share- line 26a. If you deduct actual expenses: holder. This election cannot be made by tax shelters, farming syndicates, • Include on line 12 the business portion or partners in partnerships required to use of expenses for gasoline, oil, repairs, insurance, tires, license plates, etc., and Line 16 the accrual method of accounting under section 447 or 448. • Show depreciation on line 16 and rent You can deduct depreciation of buildings, or lease payments on line 26a. improvements, cars and trucks, machinery, If you make the election to deduct and other farm equipment of a permanent preproductive expenses for plants, any gain If you take the standard mileage rate, nature. you realize when disposing of the plants is multiply the number of business miles by ordinary income up to the amount of the 37.5 cents. Add to this amount your park- Do not deduct depreciation on your preproductive expenses you deducted. ing fees and tolls, and enter the total on line home, furniture or other personal items, Also, the alternative depreciation rules apsale, or other property in your inventory. 12. Do not deduct depreciation, rent or land, livestock you bought or raised for reply to property placed in service in any tax lease payments, or your actual operating year your election is in effect. Unless you expenses. You can also elect under section 179 to obtain IRS consent, you must make this If you claim any car or truck expenses expense a portion of the cost of certain election for the first tax year in which you (actual or the standard mileage rate), you property you bought in 2004 for use in your engage in a farming business involving the must provide the information requested on farming business. production of property subject to the capi- Form 4562, Part V. Be sure to attach Form talization rules. You cannot revoke this For details, including when you must 4562 to your return. election without IRS consent. complete and attach Form 4562, see the For details, see Pub. 463. instructions for Schedule C, line 13, on For details, see Pub. 225. page C-4. Prepaid farm supplies. Generally, if you use the cash method of accounting and your Line 14 prepaid farm supplies are more than 50% of Line 17 Deductible soil and water conservation exyour other deductible farm expenses, your penses generally are those that are paid to deduction for those supplies may be limconserve soil and water or to prevent ero- Deduct contributions to employee benefit ited. Prepaid farm supplies include exsion of land used for farming. These ex- programs that are not an incidental part of a penses for feed, seed, fertilizer, and similar pension or profit-sharing plan included on penses include (but are not limited to) the farm supplies not used or consumed during line 25. Examples are accident and health cost of leveling, grading and terracing, conthe year. They also include the cost of poultour furrowing, the construction, control, plans, group-term life insurance, and de- try that would be allowable as a deduction pendent care assistance programs. If you and protection of diversion channels, drainin a later tax year if you were to (a) capitalage ditches, earthen dams, watercourses, made contributions on your behalf as a ize the cost of poultry bought for use in self-employed person to a dependent care outlets and ponds, the eradication of brush, your farming business and deduct it ratably assistance program, complete Form 2441, and the planting of windbreaks. over the lesser of 12 months or the useful Parts I and III, to figure your deductible life of the poultry and (b) deduct the cost of These expenses can be deducted only if contributions to that program. poultry bought for resale in the year you they are consistent with a conservation plan Do not include on line 17 any contribuapproved by the Natural Resources Conser- tions you made on your behalf as a self-emsell or otherwise dispose of it. vation Service of the Department of Agri- ployed person to an accident and health If the limit applies, you can deduct pre- culture for the area in which your land is plan or for group-term life insurance. You paid farm supplies that do not exceed 50% located. If no plan exists, the expenses must may be able to deduct on Form 1040, line of your other deductible farm expenses in be consistent with a plan of a comparable 31, the amount you paid for health insurthe year of payment. You can deduct the state agency. You cannot deduct the ex- ance on behalf of yourself, your spouse, excess only in the year you use or consume penses if they were paid or incurred for and dependents even if you do not itemize the supplies (other than poultry, which is land used in farming in a foreign country. your deductions. See the instructions for deductible as explained above). For details Do not deduct expenses you paid or in- Form 1040, line 31, for details. and exceptions to these rules, see Pub. 225. Line 12 curred to drain or fill wetlands, to prepare land for center pivot irrigation systems, or to clear land. Line 18 Your deduction cannot exceed 25% of If you use the cash method, you cannot You can deduct the actual expenses of run- your gross income from farming (excluddeduct when paid the cost of feed your ning your car or truck or take the standard ing certain gains from selling assets such as livestock will consume in a later year unmileage rate. You must use actual expenses farm machinery and land). If your conserless all of the following apply. if you used your vehicle for hire or you vation expenses are more than the limit, the used more than four vehicles simultane- excess can be carried forward and deducted • The payment was for the purchase of ously in your farming business (such as in in later tax years. However, the amount feed rather than a deposit. fleet operations). You cannot use actual ex- deductible for any 1 year cannot exceed the • The prepayment had a business purpenses for a leased vehicle if you previ- 25% gross income limit for that year. pose and was not made merely to avoid tax. F-4
• Deducting the prepayment will not return) were liable for and paid interest on materially distort your income. the mortgage and the other person received Lines 26a and 26b If all of the above apply, you can deduct the Form 1098, include your share of the If you rented or leased vehicles, machinery, the prepaid feed, which is subject to the interest on line 23b. Attach a statement to or equipment, enter on line 26a the business overall limit for Prepaid farm supplies exof the person who received the Form 1098. leased a vehicle for a term of 30 days or your return showing the name and address portion of your rental cost. But if you plained on page F-4. If all of the above do not apply, you can deduct the prepaid feed In the margin next to line 23b, enter “See more, you may have to reduce your deduc- only in the year it is consumed. attached.” tion by an inclusion amount. See Pub. 463 Do not deduct interest you prepaid in to figure your inclusion amount. 2004 for later years; include only the part Enter on line 26b amounts paid to rent that applies to 2004. Line 20 or lease other property such as pasture or farmland. Do not include the cost of transportation incurred in purchasing livestock held for resale as freight paid. Instead, add these Line 24 costs to the cost of the livestock, and deduct Enter the amounts you paid for farm labor. Line 27 them when the livestock is sold. Do not include amounts paid to yourself. Enter amounts you paid for repairs and Reduce your deduction by the amounts maintenance of farm buildings, machinery, claimed on: and equipment. You can also include what Line 22 • Form 5884, Work Opportunity Credit, you paid for tools of short life or minimal line 2; cost, such as shovels and rakes. Deduct on this line premiums paid for farm • Form 8844, Empowerment Zone and business insurance. Deduct on line 17 Do not deduct repairs or maintenance on Renewal Community Employment Credit, amounts paid for employee accident and your home. line 2; health insurance. Amounts credited to a reserve for self-insurance or premiums paid • Form 8845, Indian Employment for a policy that pays for your lost earnings Credit, line 4; Line 31 due to sickness or disability are not deduct- • Form 8861, Welfare-to-Work Credit, ible. line 2; and You can deduct the following taxes on this • Form 8884, New York Liberty Zone line. Business Employee Credit, line 2. • Real estate and personal property taxes on farm business assets. Lines 23a and 23b Count the cost of boarding farm labor but not the value of any products they used • Social security and Medicare taxes Interest allocation rules. The tax treatment from the farm. Count only what you paid you paid to match what you are required to of interest expense differs depending on its household help to care for farm laborers. withhold from farm employees’ wages and type. For example, home mortgage interest any federal unemployment tax paid. and investment interest are treated differ- If you provided taxable fringe • Federal highway use tax. ently. “Interest allocation” rules require benefits to your employees, you to allocate (classify) your interest ex- such as personal use of a car, do Do not deduct the following taxes on pense so it is deducted on the correct line of not include in farm labor the this line. your return and receives the right tax treat- amounts you depreciated or deducted elseself-employment tax. However, you can • Federal income taxes, including your ment. These rules could affect how much where. interest you are allowed to deduct on deduct one-half of your self-employment Schedule F. tax on Form 1040, line 30. Generally, you allocate interest expense • Estate and gift taxes. Line 25 by tracing how the proceeds of the loan are • Taxes assessed for improvements, used. See Pub. 535 for details. Enter your deduction for contributions to such as paving and sewers. employee pension, profit-sharing, or annu- If you paid interest on a debt secured by • Taxes on your home or personal use ity plans. If the plan included you as a your main home and any of the proceeds property. self-employed person, enter contributions from that debt were used in your farming made as an employer on your behalf on • State and local sales taxes on property business, see Pub. 535 to figure the amount Form 1040, line 32, not on Schedule F. purchased for use in your farming business. to include on lines 23a and 23b. Instead, treat these taxes as part of the cost Generally, you must file the applicable of the property. How to report. If you have a mortgage on form listed below if you maintain a penreal property used in your farming business • Other taxes not related to your farm- sion, profit-sharing, or other funded-deing business. (other than your main home), enter on line ferred compensation plan. The filing 23a the interest you paid for 2004 to banks requirement is not affected by whether or or other financial institutions for which you not the plan qualified under the Internal received a Form 1098 (or similar state- Revenue Code, or whether or not you claim Line 32 ments). If you did not receive a Form 1098, a deduction for the current tax year. There enter the interest on line 23b. is a penalty for failure to timely file these Enter amounts you paid for gas, electricity, forms. water, etc., for business use on the farm. Do If you paid more mortgage interest than not include personal utilities. You cannot is shown on Form 1098, see Pub. 535 to Form 5500. File this form for a plan that is deduct the base rate (including taxes) of the find out if you can deduct the additional not a one-participant plan (see below). first telephone line into your residence, interest. If you can, include the amount on even if you use it for your farming busiline 23a. Attach a statement to your return Form 5500-EZ. File this form for a ness. But you can deduct expenses you paid explaining the difference and enter “See one-participant plan. A one-participant for your farming business that are more attached” in the margin next to line 23a. plan is a plan that only covers you (or you than the cost of the base rate for the first If you and at least one other person and your spouse). phone line. For example, if you had a sec- (other than your spouse if you file a joint For details, see Pub. 560. ond phone line, you can deduct the business F-5
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Note. This booklet does not contain
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What is IRS e-file? It’s the fast
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Tax Return Page Reference Questions
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Quick and Easy Access to Tax Help a
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Topic TeleTax Topics No. Subject No
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Before You Fill In Form 1040 See Ho
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Chart B—For Children and Other De
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Form Item and Box in Which it Shoul
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Line 2 December 31, 2004, you were
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Form 1040—Lines 7 and 8a less tha
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gross income was over $139,500 ($69
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Form 1040—Lines 16a and 16b Age (
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Form 1040—Lines 20a and 20b Socia
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Form 1040—Line 25 IRA Deduction W
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Form 1040—Lines 27 Through 29 for
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Line 35 Include in the total on lin
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Form 1040—Lines 41 and 43 Tax Tab
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Line 44 • Tax-exempt interest fro
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Line 51—Child Tax Credit What Is
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ured the credit. Check box c and en
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Lines 65a and 65b— Earned Income
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Form 1040—Lines 65a and 65b Conti
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Worksheet A—Earned Income Credit
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Form 1040—Lines 65a and 65b Works
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2004 Earned Income Credit (EIC) Tab
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number is 20202086. Do not include
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You cannot sign your return are not
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site at www.aarp.org/taxaide or cal
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2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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