Federal Tax

Reporting Farm Income (Portfolio 608)

  • The Portfolio, Reporting Farm Income, describes the tax accounting periods and methods available to farmers and ranchers in determining their federal tax liability.


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.

Table of Contents

I. Introduction
II. Deferral of Income
III. Sale of Items Purchased for Resale
IV. Disposition of Commodities Raised and Held Primarily for Sale
V. Payments-in-Kind and Cost-Sharing Programs
VI. Commodity Credit Corporation Loans
VII. Disaster Provisions
VIII. Gains and Losses from Commodity Futures
IX. Section 1231 Transactions
X. Other Income Items
XI. Income Averaging
XII. Income Tax Consequences of a Divorce
XIII. Earned Income Credit
XIV. Information Returns
XV. Self-Employment Income
XVI. Methods of Accounting
XVII. Other Sources

Neil Harl
Charles F. Curtiss Distinguished Professor
Iowa State University
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