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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.
At the time this publication went to print, Congress was considering legislation that could affect several tax law provisions. To find out whether the legislation has been enacted, go to

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. 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.

What's New for 2010(p2)

The following items highlight a number of administrative and tax law changes for 2010. 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 Highlights of Recent Tax Changes.

Standard mileage rate.(p2)

The standard mileage rate for the cost of operating a car, van, pickup, or panel truck in 2010 is 50 cents per mile for all business miles driven. See chapter 4.

Increase in deduction for start-up costs.(p2)

For tax years beginning in 2010, you can elect to deduct up to $10,000 of your business start-up costs paid or incurred after October 22, 2004. See chapter 4.

Limitation on excess farm losses.(p2)

For tax years beginning after 2009, your farm losses may be reduced if you received certain subsidies. 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 2010 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.

Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007.(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, 2011. See chapter 7.

Expiration of the special depreciation allowance for qualified disaster assistance property.(p2)

The special depreciation allowance will not apply to qualified disaster assistance property placed in service in federally declared disaster areas where the disaster occurred after December 31, 2009. See chapter 7.

Certain property eliminated from the definition of listed property.(p2)

For tax years beginning after 2009, cellular telephones and similar telecommunications equipment have been removed from the definition of listed property. 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 December 31, 2009, will no longer be treated as 5-year property under MACRS. See chapter 7.

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

Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of $500). In addition, the 10%-of-adjusted-gross-income (10%-of-AGI) limit continues to apply to the net loss. See chapter 11.

Disaster losses.(p2)

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 deductible only if you itemize your deductions. These losses will continue to be subject to the $100-per-loss limit. See chapter 11.

Self-employed health insurance deduction.(p2)

For tax years beginning in 2010, you can deduct any self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings. See chapter 12.

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 remains $106,800 for 2010. There is no maximum limit on earnings subject to the Medicare part (2.9%). See chapter 12.

Wage limit for social security tax.(p2)

The limit on wages subject to the social security tax for 2010 is $106,800, unchanged from 2009. There is no limit on wages subject to the Medicare tax. See chapter 13.

Qualified employer's social security tax credit.(p2)

Qualified employers are allowed a credit for their share (6.2%) of social security tax on wages paid to qualified employees after March 18, 2010, and before April 1, 2010. See chapter 13.

Qualified employer's social security tax exemption.(p2)

Qualified employers are allowed an exemption for their share (6.2%) of social security tax on wages paid to qualified employees after March 31, 2010, and before January 1, 2011. See chapter 13.

What's New for 2011(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, 2010. See chapter 7.

Maximum net earnings.(p2)

The maximum net self-employment earnings subject to the social security part of the self-employment tax will remain $106,800 for 2011. There is no maximum limit on earnings subject to the Medicare part. See chapter 12.

Electronic deposit requirement.(p3)

The IRS has issued proposed regulations under section 6302 which provide that beginning January 1, 2011, you must deposit all depository taxes (such as employment tax, excise tax, and corporate income tax) electronically using the Electronic Federal Tax Payment System (EFTPS). Under these proposed regulations, which are expected to be finalized by December 31, 2010, Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after December 31, 2010. See chapter 13.

Advance payment of earned income credit (EIC).(p3)

The option of receiving advance payroll payments of EIC expires on December 31, 2010. See chapter 13.


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 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 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 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.