Education Commons^™

Materially Participate In The Business To Avoid The Passive Activity Loss Rules, Jc Hobbs

Rural Tax Education

Beginning farmers and ranchers frequently start their agricultural businesses by beginning small and keeping their day jobs. These new business activities must meet certain threshold tests to be considered active rather than passive activities. The passive activity loss rules apply to businesses including farms, limited partnerships, Limited Liability Companies (LLC’s), S Corporations, and C Corporations.

A passive activity is any activity that involves the conduct of a business in which the producer does not materially participate or a rental activity (whether or not the producer materially participates or not). Should a loss occur in such a business, the passive activity …

Farm Losses Versus Hobby Losses: Farmers Must Plan Ahead To Avoid Adverse Tax Consequences, Jc Hobbs

Rural Tax Education

The hobby loss rules which determine whether a venture is a business or a hobby, is a frequently misunderstood area of tax law that causes producers who are experiencing difficult economic times to worry, perhaps unnecessarily, that the venture will be viewed as a hobby rather than a true business venture. This article is intended to provide information to help producers reduce the likelihood that the business venture will be deemed a hobby.

Self-Employment Tax, Gary Hoff

Rural Tax Education

Most taxpayers working for an employer have FICA and Medicare withheld from their wages. The amount withheld is matched by their employer. Consequently, they will receive retirement and medical benefits when they reach retirement age. They are also entitled to disability and survivor benefits. The self-employed individual must pay self-employment (SE) tax to be entitled to similar benefits. This is paid when they file their federal income tax return. The SE tax rates equate to both the employer’s and employee’s share of FICA and Medicare.

Weather-Related Sales Of Livestock, Jc Hobbs

Rural Tax Education

There are two provisions in tax law that attempt to cushion producers from the consequences of adverse weather-related livestock sales. Under the first provision, livestock held for draft, breeding, or dairy purposes and sold due to adverse weather are provided a two-year reinvestment period. This replacement period can be extended if weather conditions persist for more than three years. The second provision, which applies to all livestock (other than poultry), allows cash basis taxpayers whose primary trade or business is farming to defer receipt from sales in excess of normal business practices due to weather-related conditions that result in a …

Introduction To Agricultural Federal Tax Issues, Ruby Ward

Rural Tax Education

Essentially all farmers, ranchers and other agricultural producers must file a federal tax return and pay federal income and/or self-employment taxes on their net profit. Farm, Farming and Who's a Farmer for Tax Purposes Filing Dates and Estimated Tax Payments provides information about IRS definitions of a farm and farmer filing income tax returns. There are special rules on filing dates for those producers that qualify as a farmer (i.e., one who receives more than two-thirds of his or her net income from farming). provides more details regarding qualifications and estimated tax payments.

Filing Dates And Estimated Tax Payments, Gary Hoff

Rural Tax Education

When managing the cash flow of the farm or ranch, it is important to preserve cash as long as possible without incurring penalties or interest for late payments. The filing date of your federal income tax return is important, as payment can be a major expense that needs to be considered as part of cash-flow planning. To understand when you must file your income tax return, you must be familiar with three areas:

1. Filing deadline,

2. Estimated tax filing requirements, and

3. Estimated tax penalty.

Estate And Gift Tax, Jc Hobbs

Rural Tax Education

Individuals may be subject to federal estate and gift taxes when large transfers of property, money, or other assets occur. Estate taxes apply to the transfer of assets (money and/or property) to one or more individuals when the owner dies. Gift taxes are imposed on the transfer of assets to another individual during the owner’s lifetime. In addition, many states also have estate and/or gift taxes.

Start-Up Costs: Correct Reporting By Farmers For Income Tax Purposes, Guido Van Der Hoeven

Rural Tax Education

Income tax rules apply to expenses that are incurred and paid before a business exists. These expenses are referred to as “start-up expenditures” or “start-up costs.” The IRS provides guidance relative to the deductibility of these start-up costs for any individual or entity beginning a new business, such as a farm. These rules apply regardless of the nature of the business or the organizational structure ultimately used in operating the new business. A challenge for the beginning business owner is to identify the “start date” of the business. Expenses incurred prior to the start date are generally considered start-up expenses, …

Related Parties For Federal Income Tax Purposes, Guido Van Der Hoeven

Rural Tax Education

“Relationships! We all got 'em, we all want 'em. What do we do with 'em?” – Jimmy Buffett

The lyrics of the song “Fruitcakes,” sung by Jimmy Buffett, ask what to do with relationships. Taxpayers need to be aware of potential income tax consequences when dealing with related parties in business transactions. Specifically, the taxpayer must identify the potentially related party and the tax issue that may apply relative to both the taxpayer and the potentially related party. To further muddy the waters regarding this issue, related parties may be defined differently for different income tax transactions. Five common tax …

Involuntary Conversion Of Business Assets, Guido Van Der Hoeven

Rural Tax Education

During the course of operating a farm or ranch, operators will get rid of, lose, or dispose of property used in the business in a variety of ways. Sometimes events beyond the control of the business result in disposition of property. The purpose of this discussion is to illustrate correct income tax reporting when business properties are disposed of due to an involuntary conversion or casualty that may occur suddenly and is beyond management’s control.

This discussion will focus on the involuntary conversion of tangible personal property (i.e., equipment and vehicles), which may be the result of a casualty loss …

The Optional Method Of Paying Self-Employment Tax, Karli Salisbury

Rural Tax Education

A self-employed individual must pay self-employment (SE) tax on earned income to be entitled to receive social security benefits. These benefits include retirement, disability, and survivor benefits as well as Medicare coverage, all of which are important to agricultural producers. To qualify for these benefits, a producer must have contributed by paying self-employment taxes and earning the required quarters of coverage. For additional information about self-employment taxes, refer to the fact sheet “If You Are Self-Employed” in the Related Articles section found on the RuralTax.org website.

How Do The At-Risk Rules Apply To A Farm Business?, Jc Hobbs

Rural Tax Education

The majority of farm businesses will not be subject to the at-risk rules. However, when a business is subject to these rules, the deduction of losses will be limited to the amount that the producer has at risk. The amount at risk is the amount the taxpayer could actually lose from the activity. If the at-risk limitation rules do not apply, other rules such as the passive loss rules or the hobby loss rules could still limit loss deductions. The purpose of this article is to explain the at-risk limitations as they apply to both farm and non-farm business activities. …