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Publication 225 (2003), Farmer's Tax Guide
For use in preparing
2003
Returns
Table of Contents
Publication 225 - Introductory Material
Introduction
Important Changes for 2003
Important Changes for 2004
Important Reminders
Important Dates
2004 Calendar Year
1. Importance of Good Records
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Why Keep Records?
Kinds of Records To Keep
How Long To Keep Records
2. Filing Requirements and Return Forms
Important Change for 2003
Important Reminders
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Filing Requirements
Taxpayer Identification Number
Estimated Tax Payment and Return Due Dates
Gross Income
Gross Income From Farming
Percentage From Farming
Due Dates for Qualified Farmers
Due Dates for Nonqualified Farmers
Estimated Tax Penalty for 2003
Extension of Time To File Form 1040
Forms You May Need To File
Schedule A, Itemized Deductions.
Schedule B, Interest and Ordinary Dividends.
Schedule C, Profit or Loss From Business.
Schedule C–EZ, Net Profit From Business.
Schedule D, Capital Gains and Losses.
Schedule E, Supplemental Income and Loss.
Schedule F, Profit or Loss From Farming.
Schedule J, Farm Income Averaging.
Schedule SE, Self-Employment Tax.
Other Forms
Information Returns
IRS e-file (Electronic Filing)
Partnership
Schedule F (Form 1040).
Other schedules.
Filing penalty.
Exception to filing penalty.
Limited Liability Company (LLC)
Corporation
S Corporation
3. Accounting Periods and Methods
Important Reminders for 2003
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Accounting Periods
Change in Tax Year
Accounting Methods
Family corporation.
Tax shelter.
Cash Method
Accrual Method
Farm Inventory
Cash Versus Accrual Method
Special Methods of Accounting
Combination Method
Change in Accounting Method
4. Farm Income
Important Change for 2003
Important Reminder
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Schedule F
Sales of Farm Products
Schedule F.
Form 4797.
Sales Caused by Weather-Related Conditions
Rents (Including Crop Shares)
Crop Shares
Agricultural Program Payments
Commodity Credit Corporation (CCC) Loans
Conservation Reserve Program (CRP)
Crop Insurance and Crop Disaster Payments
Feed Assistance and Payments
Cost-Sharing Exclusion (Improvements)
Payments under the Farm Security and Rural Investment Act of 2002
Peanut Quota Buyout Program Payments
Other Payments
Payment to More Than One Person
Income From Cooperatives
Patronage Dividends
Per-Unit Retain Certificates
Cancellation of Debt
General Rule
Exceptions
Exclusions
Income From Other Sources
Sod.
Granting the right to remove deposits.
Farm Income Averaging
Elected Farm Income (EFI)
How To Figure the Tax
Effect on Other Tax Determinations
Tax on Investment Income of Child Under 14
Alternative Minimum Tax (AMT)
Schedule J
5. Farm Business Expenses
Important Changes for 2003
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Deductible Expenses
Reasonable allocation.
Prepaid Farm Supplies
Prepaid Livestock Feed
Labor Hired
Repairs and Maintenance
Interest
Breeding Fees
Fertilizer and Lime
Taxes
Insurance
Rent and Leasing
Depreciation
Business Use of Your Home
Truck and Car Expenses
Travel Expenses
Marketing Quota Penalties
Tenant House Expenses
Items Purchased for Resale
Other Expenses
Capital Expenses
Nondeductible Expenses
Personal, Living, and Family Expenses
Other Nondeductible Items
Losses From Operating a Farm
At-Risk Limits
Passive Activity Limits
Net Operating Losses
Eligible loss.
Farming loss.
Not-for-Profit Farming
Using the presumption later.
Category 1.
Category 2.
Category 3.
6. Soil and Water Conservation Expenses
Introduction
Topics - This chapter discusses:
Business of Farming
Plan Certification
Conservation Expenses
Water well.
Assessment by Conservation District
Assessment for Depreciable Property
Limit on Deduction
Net operating loss.
Choosing To Deduct
Sale of a Farm
7. Basis of Assets
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Cost Basis
Real Property
Allocating the Basis
Uniform Capitalization Rules
Adjusted Basis
Increases to Basis
Decreases to Basis
Basis Other Than Cost
Basis for depreciation.
Taxable Exchanges
Nontaxable Exchanges
Property Received as a Gift
Property Transferred From a Spouse
Inherited Property
8. Depreciation, Depletion, and Amortization
Important Changes for 2003
Important Reminder
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Overview of Depreciation
What Property Can Be Depreciated?
When Does Depreciation Begin and End?
Can You Use MACRS To Depreciate Your Property?
What Is the Basis of Your Depreciable Property?
How Do You Treat Improvements?
Do You Have To File Form 4562?
How Do You Correct Depreciation Deductions?
Section 179 Deduction
What Property Qualifies?
How Much Can You Deduct?
How Do You Elect the Deduction?
When Must You Recapture the Deduction?
Claiming the Special Depreciation Allowance
What Is Qualified Property?
How Much Can You Deduct?
How Can You Elect Not To Claim the Allowance?
Figuring Depreciation Under MACRS
Which Depreciation System (GDS or ADS) Applies?
Which Property Class Applies Under GDS?
What Is the Placed-in-Service Date?
What Is the Basis for Depreciation?
Which Recovery Period Applies?
Which Convention Applies?
Which Depreciation Method Applies?
How Is the Depreciation Deduction Figured?
How Do You Use General Asset Accounts?
When Do You Recapture MACRS Depreciation?
Additional Rules for Listed Property
What Is Listed Property?
Can Employees Claim a Deduction?
What Is the Business-Use Requirement?
Do the Passenger Automobile Limits Apply?
What Records Must Be Kept?
Depletion
Who Can Claim Depletion?
Figuring Depletion
More Information
Amortization
Going Into Business
Reforestation Costs
Pollution Control Facilities
Section 197 Intangibles
Dispositions
9. General Business Credit
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
How To Claim the Credit
Carryback and Carryforward
Net income tax.
Tentative minimum tax.
Net regular tax liability.
Married person filing separate return.
Unused carryforward.
Quick refund.
Investment Credit
Recapture of Investment Credit
10. Gains and Losses
Important Changes
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Sales and Exchanges
Determining Gain or Loss
Like-Kind Exchanges
Transfer to Spouse
Ordinary or Capital Gain or Loss
Section 1231 transactions.
Capital Assets
Noncapital Assets
Hedging (Commodity Futures)
Livestock
Converted Wetland and Highly Erodible Cropland
Timber
Sale of a Farm
Foreclosure or Repossession
Abandonment
11. Dispositions of Property Used in Farming
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Section 1231 Gains and Losses
Nonrecaptured section 1231 losses.
Depreciation Recapture
Section 1245 Property
Section 1250 Property
Installment Sale
Other Dispositions
Other Gains
Exceptions.
Amount to report as ordinary income.
Applicable percentage.
Amount to report as ordinary income.
Applicable percentage.
12. Installment Sales
Important Reminder
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Installment Method
Cancellation.
Transfer due to death.
More information.
When to elect out.
More information.
Figuring Installment Sale Income
Selling price.
Adjusted basis for installment sale purposes.
Adjusted basis.
Selling expenses.
Depreciation recapture.
Gross profit.
Contract price.
Gross profit percentage.
Sale of depreciable property.
Selling Price Reduced
Payments Received or Considered Received
Mortgage less than basis.
Mortgage more than basis.
Exception.
Fair market value (FMV).
Third-party note.
Bond.
Buyer's note.
More information.
Installment Sale of a Farm
Example
13. Casualties, Thefts, and Condemnations
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Casualties and Thefts
Deductible losses.
Nondeductible losses.
Progressive deterioration.
Mislaid or lost property.
Farming Losses
How To Figure a Loss
Deduction Limits on Losses of Personal-Use Property
When Loss Is Deductible
Proof of Loss
Figuring a Gain
Other Involuntary Conversions
Condemnation
Irrigation Project
Livestock Losses
Tree Seedlings
Postponing Gain
Exception.
Related persons.
Replacement Property
Replacement Period
How To Postpone Gain
Disaster Area Losses
Who is eligible.
Covered disaster area.
Reporting Gains and Losses
14. Alternative Minimum Tax
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Form 6251
Exception.
Child under age 14.
Records You Must Keep
Credit for Prior Year Minimum Tax
15. Self-Employment Tax
Important Change for 2003
Important Change for 2004
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Why Pay Self-Employment Tax?
How To Pay Self-Employment Tax
Replacing a lost social security card.
Name change.
Penalty for underpayment of estimated tax.
Who Must Pay Self-Employment Tax?
Community income from a partnership.
Figuring Earnings Subject to Self-Employment Tax
Landlord Participation in Farming
Methods for Figuring Net Earnings
Regular Method
Farm Optional Method
Nonfarm Optional Method
Using Both Optional Methods
Reporting Self-Employment Tax
16. Employment Taxes
Important Change for 2004
Important Reminder
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Farm Employment
Family Employees
Crew Leaders
Social Security and Medicare Taxes
Religious exemption.
Wage limit.
Income Tax Withholding
New Form W–4 for 2004.
Advance Payment of Earned Income Credit
Reporting and Paying Social Security, Medicare, and Withheld Income Taxes
Electronic Federal Tax Payment System (EFTPS).
Federal Unemployment (FUTA) Tax
Reporting and Paying FUTA Tax
17. Retirement Plans
Important Changes for 2003
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Individual Retirement Arrangement (IRA)
Simplified Employee Pension (SEP)
Contribution Limits
Deduction Limit
Salary Reduction Simplified Employee Pension (SARSEP)
Reporting SEP Contributions on Form W–2
SIMPLE Retirement Plans
SIMPLE IRA Plan
Qualified Plan
Kinds of Qualified Plans
Setting Up a Plan
Deduction Limits
18. Excise Taxes
Important Reminders
Introduction
Topics - This chapter discusses:
Useful Items - You may want to see:
Fuels Used in Farming
Buyer of fuel (other than diesel fuel or kerosene).
Undyed diesel fuel and undyed kerosene.
Custom application of fertilizer and pesticide.
Fuel not used for farming.
How To Buy Diesel Fuel and Kerosene Tax Free
Fuels Used in Off-Highway Business Use
Fuels Used for Household Use
How To Claim a Credit or Refund
Credit only.
Claiming a Credit
Claiming a Refund
Including the Credit or Refund in Income
19. Your Rights as a Taxpayer
Useful Items - You may want to see:
Declaration of Taxpayer Rights
Examinations, Appeals, Collections, and Refunds
By mail.
By interview.
Repeat examinations.
Innocent spouse relief.
20. Sample Return
Preparing the Return
Schedule F (Form 1040)
Form 4562 — Depreciation and Amortization
Schedule SE (Form 1040) Self-Employment Tax
Form 4684—Casualties and Thefts
Form 4797—Sales of Business Property
Schedule D (Form 1040) Capital Gains and Losses
Form 1040, Page 1
Form 1040, Page 2
Schedule J (Form 1040) Farm Income Averaging
Completing the Return
21. How To Get Tax Help
Publication 225 - Additional Material
Index
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