Acknowledgment:. The valuable advice and assistance given us each year by the National Farm Income Tax Extension Committee is gratefully acknowledged.
You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes stock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards.
This publication explains how the federal tax laws apply to farming. Use this publication as a guide to figure your taxes and complete your farm tax return. If you need more information on a subject, get the specific IRS tax publication covering that subject. We refer to many of these free publications throughout this publication. See chapter 16 for information on ordering these publications.
The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. However, the information given does not cover every situation and is not intended to replace the law or change its meaning. This publication covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will continue to present the interpretation of the Service.taxmap/pubs/p225-000.htm#en_us_publink1000111138
Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.taxmap/pubs/p225-000.htm#en_us_publink1000111139
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Business Forms and Publications Branch
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
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to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.
Internal Revenue Service
1201 N. Mitsubishi Motorway
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If you have a tax question, check the information available at www.irs.gov
or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.
The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities of each agency and rate its responsiveness to small business. If you wish to comment on the enforcement actions of the IRS, you can:
- Call 1-888-734-3247,
- Fax your comments to 202-481-5719,
- Write to
Office of the National Ombudsman
U.S. Small Business Administration
409 3rd Street, S.W.
Washington, DC 20416
- Send an email to email@example.com, or
- Download the appraisal form at www.sba.gov/ombudsman.
If you want to report, confidentially, misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). You can remain anonymous. taxmap/pubs/p225-000.htm#en_us_publink1000111144
Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. Contact your county extension office for more information.
The following items highlight a number of administrative and tax law changes for 2008. They are discussed in more detail throughout the publication. More information on these and other changes can be found in Publication 553, Highlights of 2008 Tax Changes. Publication 553 is available at www.irs.gov
, click on More Forms and Publications, and then on What's Hot in Tax Forms, Publications, and Other Tax Products.
Qualified principal residence debt.(p2)
You can exclude from income a canceled debt that is qualified principal residence debt. This exclusion applies to debts canceled after December 31, 2006, and before January 1, 2010. The amount excluded from income is applied to reduce (but not below zero) the basis of your principal residence. See chapter 3.taxmap/pubs/p225-000.htm#en_us_publink100079367
Standard mileage rate.(p2)
For 2008, the standard mileage rate for each mile of business use is:
- 50.5 cents per mile for the period January 1 through June 30, 2008, and
- 58.5 cents per mile for the period July 1 through December 31, 2008.
See chapter 4.
Increased section 179 expense deduction dollar limits.(p2)
The maximum amount you can elect to deduct for most section 179 property you placed in service in 2008 is $250,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $800,000. See chapter 7.taxmap/pubs/p225-000.htm#en_us_publink100079348
Special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2009.(p2)
You may be able to take a special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2009. See chapter 7.taxmap/pubs/p225-000.htm#en_us_publink100079349
Extension of increased section 179 expense deduction for certain qualified GO Zone property.(p2)
If you own certain qualified section 179 GO Zone property acquired after December 31, 2007, and placed in service before January 1, 2009, you may be able to take an increased section 179 expense deduction. See chapter 7.taxmap/pubs/p225-000.htm#en_us_publink100079350
Additional tax relief for businesses affected by the Kansas storms and tornadoes.(p2)
An increased section 179 expense deduction and a special depreciation allowance may be available for qualified Recovery Assistance property. For more information, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.taxmap/pubs/p225-000.htm#en_us_publink100079366
Kansas and Midwestern disaster areas.(p2)
Special rules apply to casualties, thefts, and condemnations in the Kansas and Midwestern disaster areas. For more information, see chapter 11, Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.taxmap/pubs/p225-000.htm#en_us_publink100081054
Federally declared disasters.(p2)
New rules apply to losses of personal use property attributable to federally declared disasters declared in tax years beginning after 2007 and that occurred before 2010. A federally declared disaster is any disaster determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. A disaster area is the area determined to warrant such assistance. The new rules discussed here do not apply to losses in the Midwestern disaster areas.
The new rules are as follows.
- The net disaster loss (defined in (3) below) is not subject to the 10% of adjusted gross income limit.
- You can deduct a net disaster loss even if you do not itemize your deductions on Schedule A (Form 1040). You do this by completing Form 4684 and entering your net disaster loss on line 7 of the Standard Deduction Worksheet-Line 40 in the Form 1040 Instructions.
- Your net disaster loss is the excess of—
- Your personal casualty losses attributable to a federally declared disaster and occurring in a disaster area, over
- Your personal casualty gains.
Special rules for individuals impacted by Hurricanes Katrina, Rita, and Wilma.(p2)
If you claimed a casualty or theft loss deduction and in a later year you received more reimbursement than you expected, you do not recompute the tax for the year in which you claimed the deduction. Instead, you must include the reimbursement in your income for the year in which it was received, but only to the extent the original deduction reduced your tax for the earlier year. However,
an exception applies if you claimed a casualty or theft loss deduction for damage to or destruction of your main home caused by Hurricane Katrina, Rita, or Wilma, and in a later year you received a hurricane relief grant. Under this exception, you can choose to file an amended income tax return (Form 1040X) for the tax year in which you claimed the deduction and reduce (but not below zero) the amount of the deduction by the amount of the grant. If you make this choice, you must file Form 1040X by the later of:
- The due date for filing your tax return for the tax year in which you receive the grant, or
- July 30, 2009.
For more information, see IRS Notice 2008-95 at www.irs.gov
or Publication 547, Casualties, Disasters, and Thefts.
Maximum net self-employment earnings.(p3)
The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $102,000 for 2008. There is no maximum limit on earnings subject to the Medicare part. See chapter 12.taxmap/pubs/p225-000.htm#en_us_publink100078913
Conservation Reserve Program (CRP) payments.(p3)
For payments made after 2007, CRP payments are excluded from self-employment tax for individuals receiving social security benefits for retirement or disability. See the Instructions for Schedule SE (Form 1040).taxmap/pubs/p225-000.htm#en_us_publink100078914
Optional methods to figure net earnings.(p3)
For tax years beginning after 2007, the amount of gross and net income from self-employment you may have when using the farm optional method or nonfarm optional method has increased. This allows electing taxpayers to secure up to four credits of social security benefits coverage. In future years, the thresholds will be indexed to maintain that level of coverage. See chapter 12.taxmap/pubs/p225-000.htm#en_us_publink100079351
New definition for race horses eligible for the 3-year recovery period.(p3)
Any race horse (without regard to the age of the horse) placed in service after December 31, 2008, is considered 3-year property for General Depreciation System (GDS) recovery purposes.taxmap/pubs/p225-000.htm#en_us_publink100079352
Expiration of GO Zone and Kansas storms and tornadoes provisions.(p3)
Most GO Zone and Kansas disaster area relief provisions will not apply to property placed in service after December 31, 2008.taxmap/pubs/p225-000.htm#en_us_publink100079353
New recovery period for certain machinery and equipment.(p3)
Any machinery or equipment (other than any grain bins, cotton ginning assets, fences, or other land improvements) which is used in a farming business where the original use begins with the taxpayer after December 31, 2008, and is placed in service before January 1, 2010, will be treated as 5-year property for GDS purposes (10-year property for purposes of the Alternative Depreciation System (ADS)).taxmap/pubs/p225-000.htm#en_us_publink100079365
Maximum net self-employment earnings.(p3)
The maximum net self-employment earnings subject to the social security part of the self-employment tax increased to $106,800 for 2009. There is no maximum limit on earnings subject to the Medicare part. taxmap/pubs/p225-000.htm#en_us_publink100080366
Wage limit for social security tax.(p3)
The limit on wages subject to the social security tax for 2009 is $106,800. There is no limit on wages subject to the Medicare tax. See chapter 13.taxmap/pubs/p225-000.htm#en_us_publink100080130
New employment tax adjustment process in 2009.(p3)
If you discover an error on a previously filed Form 943 after December 31, 2008, make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees. Currently, taxpayers make corrections to Form 943 using Form 941c that is filed once a year with Form 943. Form 943-X is a stand-alone form, meaning taxpayers can file Form 943-X when an error is discovered, rather than waiting until the end of the year to file Form 941c with Form 943. Current year adjustments will continue to be made on line 8 of Form 943. For more information, visit the IRS website at www.irs.gov
The following reminders and other items may help you file your tax return.taxmap/pubs/p225-000.htm#en_us_publink1000111163
IRS e-file (Electronic Filing)
You can file your tax returns electronically using an IRS e-file
option. The benefits of IRS e-file
include faster refunds, increased accuracy, and acknowledgment of IRS receipt of your return. You can use one of the following IRS e-file
- Use an authorized IRS e-file provider.
- Use a personal computer.
- Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site.
For details on these fast filing methods, see your income tax package.
Principal agricultural activity codes.(p3)
You must enter on line B of Schedule F (Form 1040) a code that identifies your principal agricultural activity. It is important to use the correct code because this information will identify market segments of the public for IRS Taxpayer Education programs. The U.S. Census Bureau also uses this information for its economic census. See the list of Principal Agricultural Activity Codes on page 2 of Schedule F.taxmap/pubs/p225-000.htm#en_us_publink1000111166
Publication on employer identification numbers (EIN).(p3)
Publication 1635, Understanding Your EIN, provides general information on employer identification numbers. Topics include how to apply for an EIN and how to complete Form SS-4.taxmap/pubs/p225-000.htm#en_us_publink1000111167
Change of address.(p3)
If you change your home or business address, you should use Form 8822, Change of Address, to notify the IRS. Be sure to include your suite, room, or other unit number. taxmap/pubs/p225-000.htm#en_us_publink1000111168
You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality and for which you paid an advisor a minimum fee, (3) transactions for which you have or a related party has a right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, (4) transactions that result in losses of at least $2 million in any single year or $4 million in any combination of years, and (5) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. For more information, see the Instructions for Form 8886.taxmap/pubs/p225-000.htm#en_us_publink1000111169
Form W-4 for 2009.(p3)
You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2008. Those employees who owed a large amount of tax or received a large refund for 2008 may need to file a new Form W-4. See Publication 919, How Do I Adjust My Tax Withholding.taxmap/pubs/p225-000.htm#en_us_publink1000111170
Generally, file Form 1099-MISC if you pay at least $600 in rents, services, and other miscellaneous payments in your farming business to an individual (for example, an accountant, an attorney, or a veterinarian) who is not your employee. taxmap/pubs/p225-000.htm#en_us_publink1000111171
Electronic deposits of taxes.(p3)
You must use the Electronic Federal Tax Payment System (EFTPS) to make electronic deposits of all depository tax liabilities you incur in 2009 and thereafter if you deposited more than $200,000 in federal depository taxes in 2007 or you had to use EFTPS in 2008 or a prior year. See chapter 13.taxmap/pubs/p225-000.htm#en_us_publink1000111174
Photographs of missing children.(p3)
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.