Estimated tax is the method used to pay tax on income that is not subject to withholding. See Publication 505 for the general rules and requirements for paying estimated tax. If you are a qualified farmer, defined below, you are subject to the special rules covered in this chapter for paying estimated tax.

See chapter 16 for information about getting publications and forms.

Special rules apply to the payment of estimated tax by individuals who are qualified farmers. If you are not a qualified farmer as defined next, see Publication 505 for the estimated tax rules that apply.

An individual is a qualified farmer for 2012 if at least two-thirds of his or her gross income from all sources for 2011 or 2012 was from farming. See Gross Income, next, for information on how to figure your gross income from all sources and see Gross Income From Farming, later, for information on how to figure your gross income from farming. See also Percentage From Farming, later, for information on how to determine the percentage of your gross income from farming.

Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from income tax. On a joint return, you must add your spouse's gross income to your gross income. To decide whether two-thirds of your gross income was from farming, use as your gross income the total of the following income (not loss) amounts from your tax return.

• Wages, salaries, tips, etc.
• Taxable interest.
• Ordinary dividends.
• Taxable refunds, credits, or offsets of state and local income taxes.
• Alimony.
• Gross business income from Schedule C (Form 1040).
• Gross business receipts from Schedule C-EZ (Form 1040).
• Capital gains from Schedule D (Form 1040). Losses are not netted against gains.
• Gains on sales of business property.
• Taxable IRA distributions, pensions, annuities, and social security benefits.
• Gross rental income from Schedule E (Form 1040).
• Gross royalty income from Schedule E (Form 1040).
• Taxable net income from an estate or trust reported on Schedule E (Form 1040).
• Income from a Real Estate Mortgage Investment Conduit reported on Schedule E (Form 1040).
• Gross farm rental income from Form 4835.
• Gross farm income from Schedule F (Form 1040).
• Your distributive share of gross income from a partnership, or limited liability company treated as a partnership, from Schedule K-1 (Form 1065).
• Your pro rata share of gross income from an S corporation, from Schedule K-1 (Form 1120S).
• Unemployment compensation.
• Other income not included with any of the items listed above.

Gross income from farming is income from cultivating the soil or raising agricultural commodities. It includes the following amounts.

• Income from operating a stock, dairy, poultry, bee, fruit, or truck farm.
• Income from a plantation, ranch, nursery, range, orchard, or oyster bed.
• Crop shares for the use of your land.
• Gains from sales of draft, breeding, dairy, or sporting livestock.

Gross income from farming is the total of the following amounts from your tax return.

• Gross farm income from Schedule F (Form 1040).
• Gross farm rental income from Form 4835.
• Gross farm income from Schedule E (Form 1040), Parts II and III.
• Gains from the sale of livestock used for draft, breeding, sport, or dairy purposes reported on Form 4797.

For more information about income from farming, see chapter 3.

Figure your gross income from all sources, discussed earlier. Then figure your gross income from farming, discussed earlier. Divide your farm gross income by your total gross income to determine the percentage of gross income from farming.

Jane Smith had the following total gross income and farm gross income amounts in 2012.

	Total	Farm
Taxable interest	$3,000
Dividends	500
Rental income (Sch E)	41,500
Farm income (Sch F)	75,000	$75,000
Gain (Form 4797)	5,000	5,000
Total	$125,000	$80,000

Schedule D showed gain from the sale of dairy cows carried over from Form 4797 ($5,000) in addition to a loss from the sale of corporate stock ($2,000). However, that loss is not netted against the gain to figure Ms. Smith's total gross income or her gross farm income. Her gross farm income is 64% of her total gross income ($80,000 ÷ $125,000 = 0.64).

The following special estimated tax rules apply if you are a qualified farmer for 2012.

• You do not have to pay estimated tax if you file your 2012 tax return and pay all the tax due by March 1, 2013.
• You do not have to pay estimated tax if you expect your 2012 income tax withholding (including any amount applied to your 2012 estimated tax from your 2011 return) to be at least 662/3% (.6667) of the total tax to be shown on your 2012 tax return or 100% of the total tax shown on your 2011 return.
• If you must pay estimated tax, you are required to make only one estimated tax payment (your required annual payment) by January 15, 2013, using special rules to figure the amount of the payment. See Required Annual Payment, next, for details.

Figure 15-1 presents an overview of the special estimated tax rules that apply to qualified farmers.

Assume the same fact as in Example 1. Ms. Smith's gross farm income is only 64% of her total income. Therefore, based on her 2012 income, she does not qualify to use the special estimated tax rules for qualified farmers. However, she does qualify if at least two-thirds of her 2011 gross income was from farming.

Assume the same facts as in Example 1 except that Ms. Smith's farm income from Schedule F was $90,000 instead of $75,000. This made her total gross income $140,000 ($3,000 + $500 + $41,500 + $90,000 + $5,000) and her farm gross income $95,000 ($90,000 + $5,000). She qualifies to use the special estimated tax rules for qualified farmers, since 67.9% (at least two-thirds) of her gross income is from farming ($95,000 ÷ $140,000 = .679).

If you are a qualified farmer and must pay estimated tax for 2012, use the worksheet on Form 1040-ES to figure the amount of your required annual payment. Apply the following special rules for qualified farmers to the worksheet.

• On line 14a, multiply line 13c by 662/3% (.6667).
• On line 14b, enter 100% of the tax shown on your 2011 tax return regardless of the amount of your adjusted gross income. For this purpose, the "tax shown on your 2011 tax return" is the amount on line 61 of your 2011 return modified by certain adjustments. For more information, see chapter 4 of Publication 505.