Reporting Farm Income (Portfolio 608)

Bloomberg Tax Portfolio, Reporting Farm Income, No. 608, describes the tax accounting periods and methods available to farmers and ranchers in determining their federal tax liability. Farmers, like all taxpayers, can use the cash method or an accrual method. In addition, farmers may use the crop method. The cash and accrual methods of accounting are modified in the case of farmers by a number of provisions designed to provide relief to farmers and to limit the use of farms as tax shelters.

This Portfolio analyzes the special rules applicable to farms, including: (1) constructive receipt and deferral of income; (2) gifting of commodities (charitable and non-charitable); (3) sale of commodities after retirement; (4) hedging and speculation with farm commodities; (5) handling disaster payments; (6) excluding cost share payments from income; (7) income averaging for farmers and fishermen; (8) availability of the cash method and its application to farming operations; (9) deduction of prepaid feed expenses; (10) farming inventory methods; (11) application of the uniform capitalization rules to farming, including preproductive period expenses of livestock and growing crops; (12) treatment of Commodity Credit Corporation loans and farm subsidies; (13) handling §1231 gains; (14) income in respect-of-decedent in a farm or ranch setting; (15) limitations on farming syndicates; (16) the crop method of accounting; and (17) changes in method of accounting for farming operations.

The Portfolio also discusses the self-employment tax implications in reporting farm income including the handling of Conservation Reserve Program Payments, consequences of renting land to a family-owned entity and the reporting of value-added payments from a cooperative.