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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 Please put "Publications Comment" on the subject line. You can also send us comments from, select "Comment on Tax Forms and Publications" under "Information about."
Although we cannot respond individually to each comment received, 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 on 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.

Rural tax education website.(p2)

The Rural Tax Education website is a source for information concerning agriculturally related income and deductions and self-employment tax. The website is available for farmers and ranchers, other agricultural producers, Extension educators, and any one interested in learning about the tax side of the agricultural community. Members of the National Farm Income Tax Extension Committee are contributors for the website and the website is hosted by Utah State University Cooperative Extension. You can visit the website at

What's New for 2011(p2)

The following items highlight a number of administrative and tax law changes for 2011. They are discussed in more detail throughout the publication.
Standard mileage rate.(p2)
For 2011, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is:
  • 51 cents per mile for the period January 1 through June 30, 2011, and
  • 55.5 cents per mile for the period from July 1 through December 31, 2011.
See chapter 4.
Start-up costs back to $5,000 in 2011.(p2)
For tax years beginning in 2011, you can elect to deduct up to $5,000 of your business start-up costs paid or incurred after October 22, 2004. The increased limit of $10,000 for start-up costs was only allowed in 2010. 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 2011 is $500,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. See chapter 7.
Special depreciation allowance for certain qualified property acquired after September 8, 2010.(p2)
You may be able to take a 100% special depreciation allowance for certain qualified property acquired after September 8, 2010, and placed in service before January 1, 2012. See chapter 7.
Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007.(p2)
You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2013. See chapter 7.
Self-employed health insurance deduction.(p2)
For tax years beginning after 2010, you cannot deduct any self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings. See chapter 12.
Tax rates.(p2)
For tax years beginning in 2011, the social security part of the self-employment tax decreases from 12.4% to 10.4%. The Medicare part of the tax remains at 2.9%. As a result, the self-employment tax is reduced from 15.3% to 13.3%. See chapter 12.
Maximum net earnings.(p2)
The maximum net self-employment earnings subject to the social security part (10.4%) of the self-employment tax remains $106,800 for 2011. There is no maximum limit on earnings subject to the Medicare part (2.9%). See chapter 12.
Social security and Medicare tax for 2011.(p2)
The employee tax rate for social security is 4.2%. The employer tax rate for social security remains unchanged at 6.2%. The Medicare tax rate is 1.45% each for employers and employees. See chapter 13.
Qualified employer's social security tax exemption expired.(p2)
The qualified employer's exemption for their share (6.2%) of social security tax on wages/tips paid to qualified employees expired on December 31, 2010. See chapter 13.
Advance payment of earned income credit (EIC).(p2)
The option of receiving advance payroll payments of EIC expired on December 31, 2010. Individuals eligible for EIC in 2011 can still claim the credit when they file their federal income tax return. See chapter 13.
Federal tax deposits must be made by electronic funds transfer.(p2)
Beginning January 1, 2011, you must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after December 31, 2010. Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). See chapter 13.

What's New for 2012(p2)

Expiration of the special depreciation allowance for specified Gulf Opportunity (GO) Zone Extension property.(p2)
The special depreciation allowance will not apply to specified GO Zone Extension property placed in service after December 31, 2011. See chapter 7.
Maximum net earnings.(p2)
The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2012 will be discussed in the 2011 Publication 334. The Medicare part of the tax remains at 2.9%. See chapter 12.
Social security and Medicare tax for 2012.(p2)
The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2012 will be discussed in the December 2011 revision of Publication 51 (Circular A). The Medicare tax rate is 1.45% each for employers and employees. There is no limit on the amount of wages subject to Medicare tax. See chapter 13.
The IRS has created a page on for information about Publication 225, at Information about any recent developments affecting Publication 225 will be posted on that page.


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.
  • 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 (Form 1040).
Publication on employer identification numbers (EIN).(p3)
Publication 1635, Understanding Your Employer Identification Number, 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 address, you should use Form 8822, Change of Address, to notify the IRS. If you change your business address, you should use Form 8822-B, Change of Address — Business, 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 2011.(p3)
You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2010. Those employees who owed a large amount of tax or received a large refund for 2010 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.
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.