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IRS issues tax tips for farmers

IRS has posted to its website ten tips to assist farmers in meeting their tax compliance responsibilities.

Background. All individuals, partnerships, or corporations that cultivate, operate, or manage farms for gain or profit, either as owners or tenants, are designated as farmers. The term “farm” embraces the farm in the ordinarily accepted sense, and includes stock, dairy, poultry, fruit, and truck farms; also plantations, ranches, and all land used for farming operations. (Reg. § 1.61-4(d))

IRS issues tax tips for farmers. IRS has recently posted the following tax tips for farmers to its website

1. Crop insurance. Insurance payments from crop damage count as income. Generally, farmers should report these payments in the year they get them.
2. Sale of items purchased for resale. A farmer who sold livestock or items that he bought for resale must report the sale. His profit or loss is the difference between his selling price and his basis in the item. Basis is usually the cost of the item. His cost may also include other amounts he paid such as sales tax and freight.
3. Weather-related sales. Bad weather such as a drought or flood may force a farmer to sell more livestock than he normally would in a year. If so, he may be able to delay reporting a gain from the sale of the extra animals.
4. Farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is proper for that business.
5. Employee wages. A farmer can deduct reasonable wages he paid to his farm’s full and part-time workers. He must withhold Social Security, Medicare and income taxes from their wages.
6. Loan repayment. A farmer can only deduct the interest he paid on a loan if the loan is used for his farming business. He can’t deduct interest he paid on a loan that he used for personal expenses.
7. Net operating losses. If his expenses are more than income for the year, a farmer may have a net operating loss. He can carry that loss over to other years and deduct it. He may get a refund of part or all of the income tax he paid in prior years. He may also be able to lower his tax in future years.
8. Farm income averaging. A farmer may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may cut his taxes if his farm income is high in the current year and low in one or more of the past three years.
9. Tax credit or refund. A farmer may be able to claim a tax credit or refund of excise taxes he paid on fuel used on his farm for farming purposes.
10. Farmers Tax Guide. For more details on this topic, IRS points farmers to Publication 225, Farmer’s Tax Guide. It is available on anytime. One can also have a copy of the publication can be mailed to him by ordering it on .

References: For farmers, see FTC 2d/FIN ¶  N-1000; United States Tax Reporter ¶  614.051; TaxDesk ¶  116,000; TG ¶  20000.

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