IRS Publication 225 or Farmer's Tax Guide

WHAT IS IRS Publication 225 or Farmer's Tax Guide

IRS Publication 225, or the Farmer's Tax Guide, is a document published by the Internal Revenue Service.

BREAKING DOWN IRS Publication 225 or Farmer's Tax Guide

IRS Publication 225, or the Farmer's Tax Guide, is a document that helps individuals involved in agribusiness navigate the farming-specific tax code. The document details and outlines how the federal government taxes farms. Individuals will be liable for taxes if the farm is operated for profit, whether the taxpayer owns the farm or is a tenant. IRS Publication 225 outlines the different accounting methods that farmers may use for running their operations and how farmers must report farm income.

Agribusiness is the business sector encompassing farming and farming-related commercial activities. The business involves all the steps required to send an agricultural product to market: production, processing, and distribution. Since farming as a business activity differs so significantly from most other businesses, special rules apply. There are special rules for deducting improvement costs, depreciation of machinery and reporting of crop rents.

Other Agribusiness-Specific Tax Code and Assistance

Along with IRS Publication 225, the IRS publishes IRS Publication 51, a document specific to the employers of agricultural workers. Publication 51 provides guidance on how individuals who employ workers in the agribusiness must comply with tax withholdings. The U.S. Department of Labor requires farm labor contractors to register with them, and also does not allow employers to label farm employees as independent contractors.

Not only does the IRS publish these specific guides, but income from a farm itself incurs a special designation. According to U.S. agricultural policy, farm income can be divided into Gross Cash Income, Gross Farm Income, Net Cash Income and Net Farm Income. Gross Cash Income refers to the sum of all receipts from the sale of crops, livestock and farm-related goods and services, as well as any direct payments from the government; whereas Gross Farm Income refers to the the same sources as Gross Cash Income with the addition of non-money income, such as the value of home consumption of self-produced food.

Similarly, Net Cash Income is the Gross Cash Income minus all cash expenses, such as for feed, seed, fertilizer, property taxes, interest on debt, wagers, contract labor and rent to non-operator landlords. Net Farm Income, on the other hand, is the Gross Farm Income minus cash expenses and non-cash expenses, such as capital consumption and farm household expenses. Farm income usually follows the calendar Jan. 1 through Dec. 31. This definition helps farmers and regulators alike keep track of agribusiness income.

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  1. Internal Revenue Service. "About Publication 225, Farmer's Tax Guide." Accessed Nov. 19, 2020.

  2. Internal Revenue Service. "Publication 225: Farmer's Tax Guide," Page 1. Accessed Nov. 19, 2020.

  3. Internal Revenue Service. "Publication 225: Farmer's Tax Guide," Pages 5-8. Accessed Nov. 19, 2020.

  4. Internal Revenue Service "Publication 51: (Circular A), Agricultural Employer's Tax Guide," Pages 6, 9. Accessed Nov. 19, 2020.

  5. U.S. Department of Labor. "Wages and Hours Worked: Worker Protections in Agriculture." Accessed Nov. 19, 2020.

  6. U.S. Department of Labor. "Fact Sheet #35: Joint Employment and Independent Contractors Under the Migrant and Seasonal Agricultural Worker Protection Act." Accessed Nov. 19, 2020.

  7. Congressional Research Service. "Agriculture: A Glossary of Terms, Programs, and Laws, 2005 Edition," Page 97. Accessed Nov. 19, 2020.

  8. Iowa State University. "Your Farm Income Statement." Accessed Nov. 19, 2020.

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