Agriculture - Income Tax Info

Gregory J. Cook, EA, CPA
Accredited Tax Advisor

We experienced severe droughts in many parts of the United States in 2006 and 2007. As a result of the droughts, many cattle, horse and other livestock farmers were forced to sell off parts of their herds prematurely and many crop growers received crop insurance.

Patronage Dividends - Agriculture Tax Info
Do you know what to do with your 1099-PATR? If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends. If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative.

Cancellation of Debt - Agriculture Tax Info
Have you had a portion of a loan forgiven? If your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes.

Disaster Area Losses - Agriculture Tax Info
Has your county been declared a Federal Disaster Area? Special rules apply to Presidentially declared disaster area losses. A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

Net Operating Losses - Agriculture Tax Info
Did you have a really bad year? If your deductible loss from operating your farm is more than your other income for the year, you may have a net operating loss (NOL). You may also have an NOL if you had a personal or business-related casualty or theft loss that was more than your income.

Crop Insurance and Crop Disaster Payments - Agriculture Tax Info
Are these payments taxable? You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood, or any other natural disaster.

Farm Income Averaging - Agriculture Tax Info
Is your profit greater than normal? If you are engaged in a farming business, you may be able to average all or some of your current year's farm income by shifting it to the 3 prior years (base years).

Prepaid Farm Expenses - Agriculture Tax Info
Do you buy supplies in advance? There may be a limit on your deduction for prepaid farm supplies if you use the cash method of accounting to report your income and expenses. This limit will not apply, however, if you meet one of the exceptions, described later.

Items Purchased for Resale - Agriculture Tax Info
When do you deduct the cost of livestock and other items? If you use the cash method of accounting, you can deduct the cost of livestock and other items purchased for resale in Part I of Schedule F in the year of sale.

Soil and Water Conservation - Agriculture Tax Info
Do you have an erosion problem? If you are in the business of farming, you can choose to currently deduct your expenses for soil or water conservation or for the prevention of erosion of land used in farming.

Commodity Credit Corporation Loans - Agriculture Tax Info
When does a loan become income? Normally, you do not report loans you receive as income, and you report income from a crop for the year you sell it. However, if you pledge part or all of your production to secure a CCC loan, you can choose to treat the loan as if it were a sale of the crop and report the loan proceeds as income for the year you receive them.

Sales Caused By Weather-Related Condition - Agriculture Tax Info
How can you report the income? If you sell more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to choose to postpone reporting the gain from selling the additional animals until the next year.

Fuel and Road Use Tax - Agriculture Tax Info
Are you paying too much fuel tax? You may be eligible to claim a credit or refund of excise taxes on fuel used on a farm for farming purposes. This applies if you are the owner, tenant, or operator of a farm.

National Tobacco Growers Settlement Trust Payment - Agriculture Tax Info
Are my settlement payments taxable? The National Tobacco Growers Settlement Trust (Trust) is an offshoot of the Master Settlement Agreement (MSA) which was signed in November 1998 to settle claims brought by a majority of the states against certain tobacco manufacturers, to recover health care costs associated with tobacco use.