Preparing the Return Schedule F (Form 1040) The first step in preparing Mr. Brown's income tax return is todetermine his net farm profit or loss on Schedule F. The income andexpenses shown on this Schedule F are taken from his farm receipt andexpense records. Data for the depreciation and section 179 deductionsare taken from Form 4562 and the illustrated DepreciationWorksheet that follows Form 4562. (Farm income is discussed inchapter 4and farm expenses are discussed in chapter 5.)Mr. Brown hasfiled all required Form 1099 information returns. On line B he writes the number "112120" from the list ofPrincipal Agricultural Activity Codes on page 2 of ScheduleF (not shown). This indicates that his principal source of farm incomeis from dairy farming. Schedule F--Part I (Income) Mr. Brown keeps records of the various types of farm income hereceives during the year. He uses this information to complete Part Iof Schedule F. Line items.hotel room in BorgarnesHe then fills in all applicable items of farm income. Line 1.In 1999, he sold steers he had bought for resale. He enters salesof $26,584. Line 2.He enters the cost of the steers, $6,523. He has kept a record ofthe cost of the livestock he bought and is careful to deduct the costof an animal in the year of its sale. Line 3.He subtracts his cost on line 2 from the sales on line 1 andreports the difference, $20,061, as his profit on line 3. Had he soldany other items he bought for resale, he would combine the sales andcosts of these items with the sales and costs of the steers and reportonly the totals on lines 1, 2, and 3. He does not report here sales ofanimals held for draft, dairy, breeding, or sport. He reports thosesales on Form 4797. Line 4.He enters the income he received during 1999 from sales of items heraised or produced on his farm. His principal source of farm income isdairy farming. The amount reported on this line, $163,018, includessales of all of the following. Milk $133,874 Raised steers and calves 2,914 Vegetables he grew 1,457 Corn ($7,286), hay ($8,944), and wheat ($8,543)he raised     24,773 Total reported on line 4 $163,018 Lines 5a and 5b.He reports the $33 of patronage dividends received fromcooperatives on line 5a. Since it was a qualified written notice ofallocation, he enters $33 as the taxable amount on line 5b. Lines 6a and 6b.He received Farm Service Agency (FSA) cost sharing of $438 on asoil conservation project (diversion channels) completed in 1999. Hereceived the income as materials and services paid for by thegovernment and reports it on both line 6a and line 6b. The Departmentof Agriculture (USDA) reports this amount to the Internal RevenueService (IRS), generally on Form 1099-G. The entire $438 hasbeen included on line 14 of Schedule F as a conservation expense. Hedid not receive any cost-sharing payments this year that he couldexclude from his farm income. Line 7a.He reports the $665 loan he received from the Commodity CreditCorporation (CCC) because he elected in a previous year to treat theseloans as income in the year received. (If he had elected not to reporthis CCC loan as income in the year received and forfeited the loan ina later year, he would report the loan as income in the year offorfeiture.) Line 9.He reports his $1,258 of income from custom harvesting. Line 10.On his 1998 income tax return, he claimed a credit of $142 forexcise taxes on gasoline used on his farm. He includes the entire $142in his 1999 income on line 10 because he deducted the total cost ofgasoline (including the $142 of excise taxes) as a farm businessexpense in 1998. He also includes $250 he received as a director ofthe local milk marketing cooperative and $175 received for firewoodthat he cut and sold in 1999. Schedule F-- Part II (Expenses) Mr. Brown records his farm expenses during the year for taxpurposes and summarizes these expenses at the end of the year. Thisgives him his deductible expenses, which he enters in Part II ofSchedule F. Line items.He then fills in all applicable items of farm expense deductions. Line 12.He uses his trucks 100% for his farming business and the actualcost (not including depreciation) of operating the trucks in 1999 was$2,659. He uses his family car 60% for business. It cost $2,307 tooperate the car in 1999. He can deduct $1,384 for the car ($2,307 .60). He enters a total of $4,043 on line 12. (Depreciation isreported on line 16.) Line 13.The $2,701 on this line is the amount he paid for pesticides andherbicides purchased during the year. Line 14.He deducts the $1,040 spent on diversion channels in 1999. Theamount listed here includes the full cost of the governmentcost-sharing project, which has been reported as income on line 6. Hecontinues the policy elected in previous years of deducting annualsoil and water conservation expenses. The expenses are consistent witha plan approved by the Natural Resources Conservation Service of theUSDA. Because the amount was not more than 25% of Mr. Brown's grossincome from farming, the entire amount is deductible. See chapter 6for more information on soil and water conservation expenses. Line 15.The $1,575 on this line is the amount he paid a company forspraying his crops. He made the payment to a corporation, so he doesnot file a Form 1099-MISC to report the payment. Line 16.He enters the $37,978 depreciation from Form 4562, discussed later. Line 18.He enters the $18,019 cost of feed bought for livestock. He did notinclude the cost of feed bought for livestock he and his family intendto consume. He also did not include the value of feed grown on hisfarm. Line 19.He enters $6,544. This is the amount paid for fertilizer and lime. Line 20.He deducts the $5,105 he paid for trucking and milk marketingexpenses. He chose to itemize the $807 government milk assessment andlists it separately on line 34a. Line 21.He deducts the $3,521 cost of gasoline, fuel, and oil bought forfarm use, other than amounts he included on line 12 for car and truckexpenses. He did not deduct the cost of fuel used for heating,lighting, or cooking in his home. Line 22.discount hotels in MestreHe deducts the $1,070 cost of insurance on his farm buildings (butnot his home), equipment, livestock, and crops. He did not deduct theentire premiums on 3-year and 5-year insurance policies in the year ofpayment, but deducts each year only the part that applies to thatyear. For more information, see Insurance in chapter 5. Lines 23a and 23b.He deducts on line 23a the $3,175 interest paid on the farmmortgage for the land and buildings used in farming. He deducts online 23b the $1,043 interest paid on obligations incurred to buylivestock and other personal property used in farming or held forsale. Interest on his home is deducted on Schedule A (Form 1040),which is not shown. Line 24.He enters the $16,416 in wages he paid during the year for laborhired to operate his farm, including wages paid to his wife andchildren. He did not include amounts paid to himself. He has noemployment credits. Not all the wages paid were subject to socialsecurity and Medicare taxes, but for those that were, he included thefull amount of the wages before reduction for the employee's share ofthose taxes, or other amounts withheld. His share of the socialsecurity and Medicare taxes is included in the total taxes deducted online 31. See chapter 16for information on employment taxes. Line 26b.He enters only cash rent paid, $2,400, for the use of land herented from a neighbor, Mr. Green. He did not deduct rent paid in cropshares. He completed a Form 1099-MISC for the rent paid to Mr.Green and sent Copy A to the IRS with Form 1096. He gave Mr. GreenCopy B of the Form 1099-MISC. Line 27.The $5,424 he enters includes $4,902 for repairs to farm machineryand $522 for repairs to farm buildings. He did not include the valueof his own labor. He prepared Form 1099-MISC for the farmmachinery repairs because the repair shop is not incorporated. He sentCopy A to the IRS with Form 1096 and gave Copy B to the owner of therepair shop. Line 28.He enters the $2,132 cost of seeds and plants used in farming. Hededucts these costs from year to year. He did not include the cost ofplants and seeds purchased for the family garden. Line 30.He enters the $2,807 paid for livestock supplies and othersupplies, including bedding. Line 31.He enters $3,201 for taxes paid during 1999, including state andlocal taxes on the real estate and personal property used in farming.He did not include the sales tax paid on farm supplies, or 60% of thegasoline tax for gasoline used in the family car for farm business,because these taxes were included in the costs for supplies andgasoline that he deducted on lines 30 and 21, respectively. Heincluded his share of social security and Medicare taxes paid foragricultural employees. He filed Form 943 (not shown) in January 2000,reporting these taxes for calendar year 1999. He does not deduct, on Schedule F, his state income tax or thetaxes on his home and his land not used for farming. He deducts thesetaxes on Schedule A (Form 1040), which is not shown. He does notdeduct any federal income tax paid during the year. Line 32.He enters $3,997 for the cost of water, electricity, gas, andtelephone service used only in farming. He cannot deduct the cost ofbasic local telephone service (including any taxes) for the firsttelephone line to his home. Line 33.He enters $3,217, the total paid during 1999 for veterinary fees($1,821), livestock medicines ($650), and breeding fees ($746). Hedoes not prepare Form 1099-MISC for the veterinarian and thesupplier of breeding services because both are incorporated. Line 34.He enters other farm business expenses. These include: an $807government milk assessment; $347 for commissions, dues, and fees; $287for financial records and office supplies; and $534 for farm businesstravel and meals. Farm business travel includes expenses for the StateForage Tour and for attending the farm management conference at StateUniversity. He included only 50% of the cost of meals in thededuction. Line 36--Net farm profit.To arrive at his net farm profit, he subtracts the amount on line35 ($127,383) from the amount on line 11 ($186,040). His net farmprofit, entered on line 36, is $58,657. He also enters that amount online 18 of Form 1040, and on line 1 of Section A, Schedule SE (Form1040). Because he shows a net profit on line 36, he skips line 37. Form 4562 -- Depreciationand Amortization Mr. Brown follows the instructions and lists the information calledfor in Parts I through IV. He also completes Part V on page 2 toprovide information on listed property used in his farming business.The three vehicles used in his business are listed property. Thetruck, sold in July and shown on Form 4797, was placed in service in1990 and fully depreciated in 1995. No depreciation is allowed for1999. Depreciation record.He records information on his depreciable property in a book thathe can use to figure his depreciation allowance for several years. Heuses the Depreciation Worksheet from the Form 4562instructions to figure his 1999 deduction. Basis for depreciation.He bought his farm on January 8, 1978. Timber on the farm wasimmature and had no fair market value (FMV). He immediately dividedthe total purchase price of the farm among the land, house, barn, andfences (no other capital improvements were included in the price ofthe farm). He made the division on the purchase date in proportion to(but not in excess of) the FMVs of the assets and in the requiredorder. See Trade or Business Acquired in Publication 551for more information. He entered in his depreciation record the part of the purchaseprice for the depreciable barn and fences, giving him the basis forfiguring his depreciation allowance. The fences were fully depreciatedin 1987. Because he cannot depreciate the house and land, he keeps aseparate record showing their bases. Methods of depreciation.He depreciates all his property placed in service before 1981 usingthe straight-line method. He chose the alternate ACRS method for hismachine shed placed in service in 1986. Using the Modified AcceleratedCost Recovery System (MACRS) and the half-year convention, he chosethe following systems for all of his assets placed in service in theyear indicated. 1995--straight line ADS. 1996--150% declining balance Alternative DepreciationSystem (ADS). 1997 & 1999--150% declining balance GeneralDepreciation System (GDS). Depreciable property.One of his purchased dairy cows was killed by lightning in July1999. Two other purchased cows (#52 and #60) were sold in 1999. Thecows were depreciated under MACRS (ADS), using a half-year convention.Therefore, he can claim a half-year's depreciation for each cow in1999. He has other breeding and dairy cows that he raised. He did notclaim depreciation on them because his basis in the cows is zero forincome tax purposes. During 1999 the Browns owned two family cars. One of them was notused for farm business. Mr. Brown cannot deduct depreciation on it. Hedetermined that his other car was used 60% for his farm business and40% for personal driving. The Depreciation Worksheet contains an itemized list ofMr. Brown's assets for which he is deducting depreciation in 1999. Hemust list each item separately to keep track of its basis. The pickuptruck and car purchased in 1996 are listed property in the 5-yearproperty class. New assets.Mr. Brown added three assets to his farming business in 1999. In January, he completed and placed in service a dairyfacility. Since the new structure is designed specifically for theproduction of milk and to house, feed, and care for dairy cattle, itis a single purpose livestock structure. The building is depreciatedseparately from the milking equipment it houses. The cost of thebuilding is $56,500 and it is 10-year property under MACRS. The costof the equipment is $72,000 and it is 7-year property underMACRS. In February, he made improvements to his machine shed for atotal cost of $1,300. The improvements are depreciated as if they werea separate building with a 20-year recovery period. In March, he acquired tractor #5 by trading tractor #2 andpaying $23,729 cash. The adjusted basis of tractor #2 was $1,378 whenit was traded (Mr. Brown claimed half a year of depreciation). The newtractor has a basis of $25,107 ($23,729 + $1,378). He completedForm 8824, Like-Kind Exchanges, (not shown) to report thetrade and will include this form when he files his return. He electedto expense part of the cost of the tractor in 1999 and depreciate therest of the basis (cost + basis of trade-in). Line items.Form 4562 is completed by referring to the DepreciationWorksheet. Line 2.Mr. Brown enters $152,229 on line 2. This is the total cost of allsection 179 property placed in service in 1999. In figuring his cost,he does not include the basis of the traded tractor ($1,378). Thedairy facility and equipment qualify as section 179 property. However,the machine shed improvement does not qualify. It is not a singlepurpose agricultural (livestock) structure. Line 6.He enters the description of the property (tractor) he is electingto expense under section 179. His cost basis for the section 179deduction is limited to the cash he paid for the tractor. He entershis cost basis of $23,729 in column (b). He then enters the tentativededuction, $19,000, in column (c). However, this amount is subject tothe business income limit on line 11. (The total cost of his section179 property did not exceed the investment limit, $200,000, and he istherefore subject to the maximum dollar limit, $19,000.) Lines 11 and 12.His taxable income from his farming business (without including thesection 179 deduction and the self-employment tax deduction) exceedsthe maximum dollar limit on line 5. He enters $19,000 on lines 11 and12. See chapter 8for information on the section 179 deduction. Line 15.All property placed in service in 1999 in each class is combinedand entered in Part II, line 15. The abbreviation HY used in column(e) stands for the half-year convention. The 150 DB in column (f)stands for the 150% declining balance method under MACRS. Line 17.He enters $2,708, his MACRS depreciation deduction for assetsplaced in service from 1995 through 1997, on line 17 of Part III. Noneof the assets included are listed property. Listed property is enteredin Part V as explained later under Line 20. Line 19.On line 19, he enters $1,374 for assets placed in service before1981 and those depreciated under ACRS that are not listed property. Line 20.He enters his depreciation deduction for listed property, $2,244,on line 20. This is the total shown on line 26, Part V, page 2 of theform. He has two depreciable assets that are listed property--thecar used 60% for business and the pickup truck purchased in 1996. Hisdeduction for the car cannot be more than 60% of the limit forpassenger automobiles for the year he placed the car in service. Theother truck, which he sold this year, was fully depreciated. Line 21.He enters the total depreciation on line 21 and carries the total,$37,978, to line 16 of Schedule F. Other items.He completes Sections A and B of Part V to provide the informationrequired for listed property. He does not complete Section C becausehe does not provide vehicles for his employees' use. He follows the practice of writing down the odometer readings onhis vehicles at the end of each year and when he places the vehiclesin service and disposes of them. In addition, because he uses his caronly partly for business, he writes down the number of business milesit is driven any day that it is used for business. He uses theserecords to answer the questions on lines 23a and 23b of Section A andlines 28 through 34 of Section B. He has no amortization, so he does not use Part VI of Form 4562. Schedule SE (Form 1040)Self-Employment Tax After figuring his net farm profit on page 1 of Schedule F, Mr.Brown figures his self-employment tax. To do this, he figures his netearnings from farm self-employment on Short Schedule SE (Section A).He is not required to use Long Schedule SE (Section B). First heprints his name (as shown on his Form 1040) and his social securitynumber at the top of Schedule SE. Only his name and social securitynumber go on Schedule SE. His wife does not have self-employmentincome. If she had self-employment income, she would file her ownSchedule SE. Line items.He figures his self-employment tax on the following lines. Line 1.He enters his net farm profit, $58,657. All of the income, losses,and deductions that he listed on Schedule F are included indetermining net earnings from farm self-employment (see the types ofself-employment income listed in chapter 15).Consequently, he did nothave to adjust his net profit to determine his self-employment netearnings from farming. Line 3.If he were engaged in any other business in addition to farming, hewould combine his net profits from all his trades or businesses online 3 of this schedule. However, because farming was his onlybusiness, he enters his net profit from farming (the amount shown online 1). Line 4.He multiplies line 3 by .9235 to get his net earnings fromself-employment and enters $54,170 on line 4. Lines 5 and 6.He multiplies line 4 by 15.3% and enters $8,288 on line 5. This ishis self-employment tax for 1999. He also enters $8,288 on line 50 ofForm 1040. He enters $4,144 on line 6 and also on line 27 of Form 1040(deduction for one-half of his self-employment tax). Form 4684--Casualtiesand Thefts Mr. Brown's only business casualty occurred when a purchased dairycow was killed by lightning on July 7. He shows the loss from thecasualty on page 2 of Form 4684. Only page 2 is shown, since page 1 isfor nonbusiness casualties. He prints his name, his wife's name, and his identifying number atthe top of page 2. Part I.He shows the kind of property, "Dairy cow #42," its location,and the date acquired on line 19. He enters his adjusted basis in thecow, $257, on line 20 and the $109 insurance payment he received forthe cow on line 21. Since line 20 is more than line 21, he skips line22. On lines 23 and 24, he enters the FMV before, $500, and after,$-0-, the casualty, and he shows the difference, $500, on line 25. Heenters the amount from line 20 on line 26, subtracts line 21 from line26, and enters $148 on lines 27 and 28. Part II.On line 34, he identifies the casualty and enters $148 on lines34(b)(i), 35(b)(i), 37, and 38a, and on Form 4797, Part II, line 14. Form 4797--Sales ofBusiness Property After completing Schedule F and Section B of Form 4684, Mr. Brownfills in Form 4797 to report the sales of business property. SeeTable 11-1 in chapter 11for examples of itemsreported on Form 4797. He prints his name, his wife's name, and his identifying number atthe top of Form 4797. Before he can complete Parts I and II, he must complete Part III toreport the sale of certain depreciable property. Part III.Mr. Brown sold three depreciable assets in 1999 at a gain. He hasinformation about their cost and depreciation in his records. Onlydairy cow #60 appears on the Depreciation Worksheet. Thetruck and mower are fully depreciated. He sold a truck on July 9 and a mower on August 12. He also soldone purchased dairy cow, #60, on October 28. Since the gains on theseitems were gains from dispositions of depreciable personal property,as explained in chapter 11,he must determine the part of each gainthat was ordinary income. He enters the description of each item on lines 19A through 19C andrelates the corresponding property columns to the properties on thoselines. He completes lines 20 through 25(b) for each disposition ofproperty. Gain from dispositions.The gain on each item is shown on line 24. His gain on the sale ofthe truck is $700 (Property A). His gain on the sale of the mower is$70 (Property B). His gain on the sale of cow #60 is $82 (Property C).The gain on each item is entered in the appropriate property column online 25(b). Summary of Part III gains.On line 30, he enters $852, the total of property columns A throughC, line 24. On line 31, he enters $852, the total of property columnsA through C, line 25(b). This amount is the gain that is ordinaryincome. He also enters this amount on line 13, Part II. He subtracts line 31 from line 30 and enters -0- on line 32. He hasno long-term capital gain on the dispositions. All of his gain isordinary income. Part I.All of the animals in Part I met the required holding period. Mr. Brown sold at a gain several cows he had raised and used fordairy purposes. His selling expense was $325 for these cows, which heshows on line 2(f). He enters the gain from the sale on line 2(g). Healso enters on line 2(g) the gain from the sale of a raised dairyheifer and the loss from the sale of purchased dairy cow #52. Becausehe sold purchased dairy cow #52 at a loss, he entered it in Part Iinstead of Part III. See Table 11-1 in chapter 11forwhere to report items on Form 4797. He combines the gains and loss on line 2(g) and enters $14,770 online 7(g). Since he has no nonrecaptured net section 1231 losses fromprior years, he does not fill in lines 8, 9, and 12. If he hadnonrecaptured section 1231 losses, part or all of the gain on line 7would be ordinary income and entered on line 12. Following theinstructions for line 7, he enters $14,770 as a long-term capital gainon line 11(f) of Schedule D. Part II.Mr. Brown enters on line 10 the $250 gain from the sale of a23-month old raised dairy heifer held for breeding purposes. Hehad previously entered the $852 gain from line 31, Part III, on line13 and the $148 loss from Form 4684 on line 14. He totals lines 10through 17 and enters $954 on line 18. He carries the gain from line18 to line 18b(2) and shows it as ordinary income on line 14 of Form1040. Schedule D (Form 1040)Capital Gains and Losses After completing Form 4797, Mr. Brown fills in Schedule D to reportgains and losses on capital assets. He prints his name, his wife'sname, and his social security number at the top of Schedule D. Entries.He enters the required information in the appropriate columns. Lines 1 and 3.He reports as a short-term loss on line 1 his $50 loss on the 1999sale of H. T. Corporation stock held one year or less. He includes thegross sales price of the stock in column (d) on lines 1 and 3. Line 7.He completes Part I of Schedule D by entering on line 7 the loss incolumn 1(f). Lines 8 and 10.He enters on line 8 his $745 long-term gain on the sale of CircleCorporation stock held more than one year and also enters the grosssales price on line 10. Line 11.Mr. Brown had previously entered on line 11 the gain from line 7 ofForm 4797. Line 16.He combines the column (f) amounts on lines 8 and 11 and enters theresult on line 16. Line 17.In Part III, he combines lines 7 and 16 and enters his totalcapital gain on line 17. He also enters this amount on Form 1040, line13. After he completes his Form 1040 through line 39, he will use PartIV to figure his tax without regard to farm income averaging. SeeSchedule J (Form 1040) Farm Income Averaging, later. He does not have a capital loss carryover this year, so he does notcomplete the Capital Loss Carryover Worksheet in theinstructions. TaxTip: Although Mr. Brown is required to complete Schedule D (Form 1040)and attach it to his return, certain other taxpayers may be able tocomplete the Capital Gain Tax Worksheet in the Form 1040instructions instead. See the instructions for line 13 of the 1999Form 1040. Form 1040, Page 1 Mr. Brown is filing a joint return with his wife. He uses the formhe received from the IRS. Line items.He fills in all applicable items on page 1 of Form 1040. Line 6c.He prints the name and social security number of each dependentchild he claims. Line 7.Mrs. Brown worked part time as a substitute teacher for the countyschool system during 1999. She also worked for Mr. Brown on the farmduring 1999. He enters on line 7 her total wages, $8,950 ($7,750 fromthe school system and $1,200 from the farm), as shown on the FormsW-2 that he and the school system gave her. Lines 8a and 9.He did not actually receive cash payment for the interest he listedon line 8a ($375). It was credited to his account so that he couldhave withdrawn it in 1999. Therefore, he constructively received itand correctly included it in his income for 1999. He enters the $220in dividends he received from the Circle Corporation on line 9. He received patronage dividends from farmers' cooperatives based onbusiness done with these cooperatives. He does not list thesedividends here, but properly included them on lines 5a and 5b, Part Iof Schedule F. Since he did not receive more than $400 in interest or $400 individends and none of the other conditions listed at the beginning ofthe Schedule B instructions applied, he is not required to completeSchedule B. Lines 13, 14, and 18.He previously entered the following items. His capital gain on line 13 from Schedule D, line 17. His other gain on line 14 from Form 4797, line18b(2). His net farm profit on line 18 from Schedule F, line36. Line 22.He adds the amounts on lines 7 through 21 and enters the total,$84,621. Line 27.He has already entered one-half of his self-employment tax, $4,144,which he figured on Schedule SE. Line 28.He paid premiums of $8,400 during 1999 for health insurancecoverage for himself and his family and qualifies for theself-employed health insurance deduction. He figures the part of hisinsurance payment that he can deduct by completing theSelf-Employed Health Insurance Deduction Worksheet (notshown) in the instructions for Form 1040. He enters the result,$5,040, on line 28 and includes the remaining part of his insurancepayment in figuring his medical expense deduction on Schedule A (Form1040), which is not shown. Line 32.He adds the amounts on lines 23 through 31a and enters the total,$9,184, on line 32. Lines 33 and 34.He subtracts line 32 from line 22 to get his "adjusted grossincome" and enters the result, $75,437, on line 33 and also on line34 of page 2. Form 1040, Page 2 Mr. Brown fills in the following lines on page 2 of Form 1040. Line 36.He enters $7,500 from his Schedule A (Form 1040), which is notshown, because the total of his itemized deductions is larger than the$7,200 standard deduction for his filing status (married filing jointreturn). Lines 37, 38, and 39.He subtracts the $7,500 on line 36 from the $75,437 on line 34 andenters the result, $67,937 on line 37. He enters $13,750 (5 $2,750) on line 38 and subtracts this amount from the amount on line37 to get taxable income on line 39. Line 40.He enters $7,348 from Schedule J, line 22. For information on howhe figured his tax using farm income averaging, see Schedule J(Form 1040), later. Line 43.The Browns qualify for the child tax credit. He figures his creditby completing the Child Tax Credit Worksheet (not shown) inthe instructions for Form 1040. He enters his credit, $1,500, on line43. Lines 48 and 49.He enters on line 48 the amount of the child tax credit from line43 since it is the only amount he entered on lines 41 through 47. Hesubtracts that amount from the tax on line 40 and enters $5,848 online 49. Line 50.He has already entered the $8,288 self-employment tax he figured onSchedule SE. Line 56.He adds the amounts on lines 49 through 55 and enters $14,136,which is the total tax for 1999. Line 57.He enters the income tax withheld from Mrs. Brown's wages, $435, asshown on the Forms W-2 she received. He attaches Copy B of herForms W-2 to the front of Form 1040. Line 58.He did not make 1999 estimated tax payments since two-thirds of hisgross income for 1998 was from farming. He was sure that at leasttwo-thirds of his gross income for 1999 would again be from farming.Farmers who meet either of these conditions do not have to make 1999estimated tax payments. If he files his Form 1040 and pays the tax dueno later than March 1, 2000, he will not be penalized for failure topay estimated taxes. He makes no entry on line 58. Line 59a.The Browns are not entitled to claim the earned income credit online 59a, because their modified adjusted gross income is more than$30,580. Line 63.Mr. Brown enters his credit for $350 of federal excise tax ongasoline used in 1999. He checks box "b" and attaches Form 4136(not shown) to his return, showing how he figured the credit. Thecredit must be reported as other income on Schedule F on his 2000return. Lines 64 and 68.He adds the amounts on lines 57 through 63 and enters the total,$785, on line 64. He subtracts that figure from the amount on line 56.The balance, $13,351, is entered on line 68. Schedule J (Form 1040)Farm Income Averaging In 1999, Mr. Brown's taxable income, $54,187, is substantiallyhigher than in each of the 3 previous years. His taxable incomeamounts were only $2,500, $1,050, and $700 for 1998, 1997, and 1996,respectively, and he had no gains or losses from farming. He elects touse farm income averaging by completing Schedule J to figure his tax. First, he uses Part IV of Schedule D to figure his tax withoutregard to farm income averaging. Next, he uses Schedule J to figurehis tax using farm income averaging. Line items.He fills in the lines on Schedule J. Line 1.He enters $54,187, his taxable income from line 39 of Form 1040. Line 2.He enters the part of his farm income he is electing to average,$35,187. This amount of farm income allows him to take advantage ofthe lowest tax brackets for this year and the 3 previous years. Line 3.Riga hotelsHe subtracts the amount on line 2 from the amount on line 1 andenters $19,000 on line 3. Line 4.Because he has capital gains and losses this year, he computes thetax on $19,000 using Part IV of Schedule D (not shown) and enters theresult, $2,076, on line 4. Lines 5, 9, and 13.He enters his taxable income from 1996, 1997, and 1998 on lines 5,9, and 13, respectively. Lines 6, 10, and 14.He divides the amount on line 2 by 3.0 and enters the result,$11,729, on lines 6, 10, and 14. Lines 7, 11, and 15.He figures his adjusted taxable income for the 3 previous years byadding the amounts on lines 6, 10, and 14 to the amounts on lines 5,9, and 13, respectively. Lines 8, 12, and 16.He figures the tax on the amounts on lines 7, 11, and 15 using theappropriate Tax Rate Schedules and enters the results on lines 8, 12,and 16, respectively. His income is taxed at the 15% rate for eachyear. Line 17.He adds the amounts on lines 4, 8, 12, and 16 and enters the total,$7,991, on line 17. Lines 18, 19, and 20.He enters his tax from his 1996, 1997, and 1998 returns on lines18, 19, and 20, respectively. Line 21.He adds the amounts on lines 18, 19, and 20 and enters the total,$643, on line 21. Line 22.He subtracts the amount on line 21 from the amount on line 17 andenters $7,348 on line 22. The tax on this line is less than the $8,469of tax he figured using Schedule D. Therefore, he enters on line 40 ofhis Form 1040 the amount from this line. Completing the Return The Browns sign their names and enter the date signed, theiroccupations, and their telephone number on the bottom of page 2 ofForm 1040. (If they had not prepared their own tax return, thepreparer would also sign the return and provide the informationrequested at the bottom of the page.) Mr. Brown attaches to the returnthe address label in the instructions after verifying the accuracy ofthe label. He writes his and his wife's social security numbers in theboxes next to the address label. He writes a check payable to the U.S. Treasury for the full amounton line 68 of Form 1040. On the check, he writes his social securitynumber, their telephone number, and "1999 Form 1040." His nameand address are printed on the check. Mr. Brown could instead havechosen to pay part or all of his taxes by credit card (MasterCard,American Express, or Discover). This is a new method of payment thatis optional. After making a copy of their complete return for his records, heassembles the various forms and schedules in the following order (see"Attachment Sequence Number" in the upper right corner of eachschedule or form). Their original Form 1040. Schedule A. Schedule D. Schedule F. Schedule SE. Schedule J. Form 4136. Form 4684. Form 4797. Form 4562. Form 8824. He completes Form 1040-V, Payment Voucher, whichwas included in his tax package. He carefully follows the instructionsfor mailing his return and paying the tax. Form 1040 - page 1 Form 1040 - page 2 Schedule D (Form 1040) - page 1 Schedule D (Form 1040) - page 2 Schedule F (Form 1040) - page 1 Schedule SE (Form 1040) - page 1 Schedule J (Form 1040) - page 1 Form 4684 - page 2 Form 4797 - page 1 Form 4797 - page 2 Form 4562 - page 1 Form 4562 - page 2 Depreciation Worksheet