Posted by Karen Munoz, EA

The Farmers Tax Guide

The Farmers Tax Guide

While taxes for 2020 are not due until 2021, many important financial decisions made now can have a major impact on farm taxes and when they are paid. An important resource is the Farmers' Tax Guide, used to prepare federal income tax returns for 2020. This resource is now available online.

This free and useful guide provides news analysis for 2020 and 2021 and important reminders. 

The Farmers' Tax Guide explains how federal tax laws apply to agriculture and can be used as a guide to calculate taxes and complete the farm income tax return. 

People are considered part of the agricultural sector if they cultivate, manage, or operate a farm for profit, either as an owner or tenant. A farm consists of livestock, dairy, poultry, fish, fruit, and truck farms. It also includes ranges, orchards, ranches, plantations, and forests.

Recent Changes

The changes for 2020 include the coronavirus food aid program and any direct payment for qualifying products affected by the coronavirus pandemic to offset lost sales and increased marketing costs associated with the pandemic.

Coronavirus food assistance payments are farm program payments that must be included in gross farm income. This value is shown in Schedule F, lines 4a and 4b.

For 2020, the standard mileage rate for the cost of operating a farm machine, panel truck, van, or pickup per kilometer for business purposes is 57.5 cents. Another change is that the maximum amount a farmer can choose to deduct for most Section 179 properties brought into service in 2020 is $1,040,000. This limit is reduced by the amount that the asset commissioned cost during the year exceeds $ 2,590,000.

The Payroll Protection Program (PPP) loan and forgiveness rules provide that expenses allocated to a PPP loan that is subsequently canceled cannot be deducted.

The CARES Act revised the TCJA provisions to change the treatment of eligible improvement property in operation after December 31, 2017, to a 15-year property per the accelerated recovery system costs.

The maximum net self-employment income subject to Social Security's share (12.4%) of the self-employment tax for 2020 is now $137,700. There is no maximum income limit subject to the Medicare rate (2.9%) or, where applicable, the additional Medicare tax (0.9%).

As a general rule, complete Form 1099-MISC if you pay at least $600 in rent, utilities, and other miscellaneous payments on your farm to someone, such as an accountant, lawyer, or veterinarian that is not your employee.

Payments made to businesses for medical and healthcare payments, including payments made to veterinarians, generally must be reported on Form 1099-MISC.

The IRS has redesigned Form W-4 for 2020. You should make the new W-4 forms available to your employees and encourage them to verify their income tax withholding for the previous fiscal year. There is also a new Form 1099-NEC to report compensation for the wages of the self-employed in 2020. Form 1099-NEC expires on February 1.

Keep Records

Tax records are not the only type of records to keep for the farm. Records of loans and payments, profits and other financial records, labor records, records of pesticide applications, records of soil fertility and soil tests, legal documents, production records, and marketing records are some of the important types of record-keeping you should engage in.

Records (including electronic) used to prepare taxes on farm income should generally be kept for at least three years from the due date or filing of the tax return or within two years from the date of filing, whichever is later.

Labor tax records must be kept for at least four years from the expiration of the tax or the payment date, whichever is later. Other records must be kept for longer periods, such as insurance, property, creditors, or depreciation.



Karen Munoz, EA
Contact Member