Page 86 - Small Business Taxes

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Under these circumstances, you generally treat tach a statement to your return to elect to de-
as ordinary income all of your gain if it is less Circulation Costs duct such costs. If you timely filed your return
than your adjusted exploration costs with re- for the year without making the election, you
spect to the mine. If your gain is more than your can still make the election by filing an amended
adjusted exploration costs, treat as ordinary in- A publisher can deduct as a current business return within 6 months of the due date of the re-
come only a part of your gain, up to the amount expense the costs of establishing, maintaining, turn (excluding extensions). Clearly indicate the
of your adjusted exploration costs. or increasing the circulation of a newspaper, election on your amended return and write
magazine, or other periodical. For example, a “Filed pursuant to section 301.9100-2.”
Foreign exploration costs. If you pay or incur publisher can deduct the cost of hiring extra File the amended return at the same ad-
exploration costs for a mine or other natural de- employees for a limited time to get new sub- dress you filed the original return. The election
posit located outside the United States, you scriptions through telephone calls. Circulation applies when figuring taxable income for the
cannot deduct all the costs in the current year. costs may be deducted even if they would nor- current tax year and all subsequent years. Once
You can elect to include the costs (other than mally be capitalized. made, the election is irrevocable. For more in-
for an oil, gas, or geothermal well) in the adjus- This rule does not apply to the following formation on startup and organizational costs,
ted basis of the mineral property to figure cost costs that must be capitalized. see chapter 8.
depletion. (Cost depletion is discussed in chap- • The purchase of land or depreciable prop-
ter 9.) If you do not make this election, you must erty.
deduct the costs over the 10-year period begin- • The acquisition of circulation through the Reforestation Costs
ning with the tax year in which you pay or incur purchase of any part of the business of an-
them. These rules also apply to foreign devel- other publisher of a newspaper, magazine, Reforestation costs are generally capital expen-
opment costs. or other periodical, including the purchase ditures. However, you can elect to deduct up to
of another publisher's list of subscribers. $10,000 ($5,000 if married filing separately; $0
Development Costs Other treatment of circulation costs. If you for a trust) of qualifying reforestation costs paid
or incurred after October 22, 2004, for each
do not want to deduct circulation costs as a cur- qualified timber property. The remaining costs
You can deduct costs paid or incurred during rent business expense, you can elect one of the can be amortized over an 84-month period. For
the tax year for developing a mine or any other following ways to recover these costs. information about amortizing reforestation
natural deposit (other than an oil or gas well) lo- • Capitalize all circulation costs that are costs, see chapter 8.
cated in the United States. These costs must be properly chargeable to a capital account
paid or incurred after the discovery of ores or (see chapter 1). Qualifying reforestation costs are the direct
minerals in commercially marketable quantities. • Amortize circulation costs over the 3-year costs of planting or seeding for forestation or re-
Development costs also include depreciation period beginning with the tax year they forestation. Qualified timber property is property
on improvements used in the development of were paid or incurred. that contains trees in significant commercial
ores or minerals and costs incurred for you by a quantities. See chapter 8 for more information
contractor. Development costs do not include How to make the election. You elect to capi- on qualifying reforestation costs and qualified
the costs for the acquisition or improvement of talize circulation costs by attaching a statement timber property.
depreciable property. to your return for the first tax year the election If you elect to deduct qualified reforestation
Instead of deducting development costs in applies. Your election is binding for the year it is costs, create and maintain separate timber ac-
the year paid or incurred, you can elect to treat made and for all later years, unless you get IRS counts for each qualified timber property and in-
approval to revoke it.
the costs as deferred expenses and deduct clude all reforestation costs and the dates each
them ratably as the units of produced ores or was applied. Do not include this qualified timber
minerals benefited by the expenses are sold. Business Startup and property in any account (for example, depletion
This election applies each tax year to expenses block) for which depletion is allowed.
paid or incurred in that year. Once made, the Organizational Costs
election is binding for the year and cannot be How to make the election. You elect to de-
revoked for any reason. Business startup and organizational costs are duct qualifying reforestation costs by claiming
the deduction on your timely filed income tax re-
How to make the election. The election to generally capital expenditures. However, you turn (including extensions) for the tax year the
can elect to deduct up to $5,000 of business
deduct development costs ratably as the ores expenses were paid or incurred. If Form T (Tim-
or minerals are sold must be made for each startup and $5,000 of organizational costs paid ber) is required, complete Part IV of the form. If
or incurred after October 22, 2004. The $5,000
mine or other natural deposit by a clear indica- Form T (Timber) is not required, attach a state-
tion on your return or by a statement filed with deduction is reduced by the amount your total ment containing the following information for
startup or organizational costs exceed $50,000.
the IRS office where you file your return. Gener- each qualified timber property for which an
ally, you must make the election by the due Any remaining costs must be amortized. For in- election is being made.
formation about amortizing startup and organi-
date of the return (including extensions). How- • The unique stand identification numbers.
ever, if you timely filed your return for the year zational costs, see chapter 8. • The total number of acres reforested dur-
without making the election, you can still make Startup costs include any amounts paid or ing the tax year.
the election by filing an amended return within 6 incurred in connection with creating an active • The nature of the reforestation treatments.
months of the due date of the return (excluding trade or business or investigating the creation • The total amounts of qualified reforestation
extensions). Clearly indicate the election on or acquisition of an active trade or business. Or- expenditures eligible to be amortized or
your amended return and write “Filed pursuant ganizational costs include the costs of creating deducted.
to section 301.9100-2.” File the amended return a corporation or partnership. If you timely filed your return for the year
at the same address you filed the original re- without making the election, you can still make
turn. How to make the election. You elect to de-
duct the startup or organizational costs by the election by filing an amended return within 6
Foreign development costs. The rules dis- claiming the deduction on your income tax re- months of the due date of the return (excluding
cussed earlier for Foreign exploration costs ap- turn (filed by the due date including extensions) extensions). Clearly indicate the election on
your amended return and write “Filed pursuant
ply to foreign development costs. for the tax year in which the active trade or busi-
ness begins. For costs paid or incurred after to section 301.9100-2.” File the amended return
Reduced corporate deductions for develop- September 8, 2008, you are not required to at- at the same address you filed the original re-
ment costs. The rules discussed earlier for tach a statement to your return to elect to de- turn. The election applies when figuring taxable
Reduced corporate deductions for exploration duct such costs. However, for startup or organi- income for the current tax year and all subse-
costs also apply to corporate deductions for de- zational costs paid or incurred before quent years.
velopment costs. September 9, 2008, you may be required to at-
Chapter 7 Costs You Can Deduct or Capitalize Page 27