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Publication 225

Tax Guide


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 livestock, 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.

The IRS Mission.(p2)


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.

Comments and suggestions.(p2)


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.
You can email us at * (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.(p2)

Visit 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 
Bloomington, IL 61705-6613


Tax questions.(p2)

If you have a tax question, check the information available at or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Comments on IRS enforcement actions.(p2)


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:

Treasury Inspector General for Tax Administration.(p2)


If you want to confidentially report 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.

Farm tax classes.(p2)


Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. Contact your county extension office for more information.

What's New for 2009(p2)


The following items highlight a number of administrative and tax law changes for 2009. They are discussed in more detail throughout the publication. More information on these and other changes can be found on the IRS website at and click on What's Hot in forms and publications.

Exclusion extended on qualified principal residence debt.(p2)

You can exclude from income a canceled debt that is qualified principal residence debt. The exclusion has been extended through 2012. The amount excluded from income is applied to reduce (but not below zero) the basis of your principal residence. See chapter 3.

Exclude from income payments under Federal Health Protection Program (FHPP).(p2)

Payments received under the FHPP are excluded from income. These are payments received from the Department of Agriculture for an integrated pest management strategy to protect forest, trees, and woods. See chapter 3.

Election to defer income from debt cancellation.(p2)

You can elect to defer income from the cancellation of certain business debt. See  
chapter 3.

Standard mileage rate.(p2)

The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2009 is 55 cents per mile for all business miles driven. See chapter 4.

Endangered species recovery expenses.(p2)

Beginning in 2009, you can choose to deduct endangered species recovery expenses. See chapter 5.

New recovery period for race horses.(p2)

Any race horse (without regard to the age of the horse) placed in service after 2008 is treated as 3-year property for General Depreciation System (GDS) recovery purposes. See chapter 7.

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 2009 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.

Extension of special depreciation allowance for certain qualified property acquired after 2007.(p2)

You may be able to take a special depreciation allowance for certain qualified property acquired after 2007 and placed in service before 2010. See chapter 7.

New recovery period for certain machinery and equipment.(p2)

Certain machinery or equipment placed in service after 2008 and before 2010 will be treated as 5-year property for GDS purposes (10-year property for Alternative Depreciation System (ADS) purposes). See  
chapter 7.

Increase in personal casualty and theft loss limit.(p2)

Generally, a personal casualty or theft loss must exceed $500 to be allowed for 2009. This is in addition to the 10%-of-adjusted-gross-income limit that generally applies to the net loss. See chapter 11.

New Schedule L (Form 1040A or 1040).(p2)

If you claim a net disaster loss as part of your standard deduction, you must complete Schedule L (Form 1040A or 1040) and attach it to Form 1040. See chapter 11.

Tax rates and maximum net earnings.(p2)

The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $106,800 for 2009. There is no maximum limit on earnings subject to the Medicare part (2.9%). See  
chapter 12.

New employment tax adjustment process in 2009.(p2)

If you discover an error on a previously filed Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, after 2008, make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. Previously, taxpayers made corrections to Form 943 using Form 941c, Supporting Statement To Correct Information, 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. See chapter 13.

What's New for 2010(p2)



Expiration of increased section 179 deduction and special allowance for qualified disaster assistance property.(p2)

The higher maximum 179 expense deduction and special depreciation allowance will not apply to qualified disaster assistance property placed in service in federally declared disaster areas where the disaster occurred after 2009. See chapter 7.

Expiration of the 5-year recovery period for certain machinery and equipment.(p2)

Certain machinery or equipment used in a farming business and placed in service after 2009 will no longer be treated as 5-year property under MACRS (or 10-year property under ADS). See chapter 7.

Marginal production of oil and gas.(p2)

The temporary suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas will no longer be available for tax years beginning after 2009. See chapter 7.

Decrease in personal casualty and theft loss limit.(p2)

A personal casualty or theft loss must exceed $100 to be allowed for 2010 and later years. This is in addition to the 10%-of-adjusted-gross-income limit that generally applies to the net loss. See chapter 11.

Disaster losses.(p3)

The special rules that were in effect in 2008 and 2009 for losses of personal use property attributable to federally declared disasters do not apply to losses occurring in 2010 and later years. Instead, these losses will be subject to the 10%-of-AGI limit and will be deductible only if you itemize your deductions. These losses will continue to be subject to the $100-per-loss limit. See chapter 11.

Maximum net earnings.(p3)

The maximum net self-employment earnings subject to the social security part of the self-employment tax is $106,800 for 2010. There is no maximum limit on earnings subject to the Medicare part. See chapter 12.



The following reminders and other items may help you file your tax return.


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 options. 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 (Form 1040).

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.

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.

Reportable transactions.(p3)

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.

Form W-4 for 2010.(p3)

You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2009. Those employees who owed a large amount of tax or received a large refund for 2009 may need to file a new Form W-4. See Publication 919, How Do I Adjust My Tax Withholding.

Form 1099-MISC.(p3)

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.

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 2010 and thereafter if you deposited more than $200,000 in federal depository taxes in 2008 or you had to use EFTPS in 2009 or a prior year. See chapter 13.

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.