Income
 
 
  • Farm Income - Cash Method
  • Farm Expenses
  • Vehicles used in Farm
  • Depreciation on assets other than vehicles
What is principal product of the farm?
  Principal Product of the farm means Principal crop or activity for the current year.
 
What is activity code?
  File schedule C (Form -1040) or schedule C-EZ. (Form -1040) instead filing
 Schedule-F if:

Your Principal source of income is from providing agricultural services such as soil preparation, veterinary, farm labour, horticultural, or management for a free or on a contract basis.

You are engaged in the business of breeding, raising, and caring for dogs, cats, or other pet animals.

These codes for the Principal Agricultural Activity classify farms by the type of activity they are engaged in to facilitate the administration of the Internal Revenue Code. These six-digit codes are based on the North American Industry Classification System (NAICS). The illustrative codes are as under.


      Crop Production
     111100 Oilseed and grain farming
     111210 Vegetable and melon farming
     111300 Fruit and tree nut farming
     111400 Greenhouse, nursery, and floriculture      production
     111900 Other crop farming

     Animal Production
     112111 Beef cattle ranching and farming
     112112 Cattle feedlots
     112120 Dairy cattle and milk production
     112210 Hog and pig farming
     112300 Poultry and egg production
     112400 Sheep and goat farming
     112510 Animal aquaculture
     112900 Other animal production

     Forestry and Logging
     113000 Forestry and logging (including forest      nurseries and timber tracts)
 
Why I need an EIN?
  If you satisfy any of the below laid conditions you have to get an EIN.

* If you have employees.
* If you have and you operate your business as a corporation or partnership.
* If you file any of these returns: employment, excise, alcohol, tobacco & firearms.
* If you withhold taxes on income, other than wages paid to a non resident alien.
* If you have a Keogh plan.
* If you have been involved with any of these organizations: Trusts, except certain grantor     owned revocable trust, exempt organization business income tax returns. Estates. Real estate     mortgage investment conduits. Non profit organization. Farmer’s Co operatives.
 
What to do if you select cash method?
  If you select cash method then report income in the current year in which you actually or constructively received it and deduct the expense in the year you paid them. If you received property or services, you must include their fair market value in income.
 
How to report income from farm production flexibility contract payment? 
  Payment received under the Federal Agriculture Improvement and Reform Act of 1996 are required to be included in income only in the year of actual receipt
 
FARM INCOME – CASH METHOD
What are the incomes in case method?
  Generally, in case method, count both the cash actually or constructively received and the fair market value of goods or other property received for these items. Income is constructively received when it is credited to your account or set aside for you to use.
 
When to report income if you sold livestock because of drought, flood, or other weather- related conditions?
  You can elect to report the income from the sale of livestock in the year after the year of sale if all the following apply.

* Your main business is farming.

* You can show that you sold the live stock only     because of weather-related condition.
* You are a qualified for Federal aid. For more information refer Publication 225.
 
FARM EXPENSES
What types of expenses are not deductible?
 

Following type of expenses you cannot deduct as a firm expenses,

  • Personal or living expenses such as taxes, insurance, or repairs on your home that do not produce farm income.
  • Expenses of raising anything you or your family uses.
  • The value of animals you raised that died.
  • Inventory losses.
  • Personal losses.

If you were repaid for any part of an expense, you must subtract the amount you were repaid from the deduction.

For more information see Publication 225.