For those who operate or otherwise work on a farm, there are special tax considerations that must be taken into account when preparing your tax return. This publication, the fourth in a series of articles on taxes for farmers, focuses on Agricultural Program Payments. The previous entries covered Recordkeeping and Accounting, Income from the Sale of Farm Products, and Rent Income.
Agricultural Program Payments
Farmers must include in their income certain agricultural program payments from the government. Examples of such payments include those for agricultural risk coverage payments, conservation practices, livestock indemnity programs, livestock forage disaster payments, and price loss coverage payments.
You must include payments under these programs as income, whether those payments are made in the form of cash, commodity certificates, materials, or services. You must report those payments on Schedule F, Part I, in the appropriate lines. You must report the full amount received, even if you refund the check you receive, return a check to the government for cancellation, or have the government collect payment from you by reducing the amount of another payment loan. You should claim the amount refunded or returned as a deduction on Schedule F in the tax year you made the repayment or reduction.
Commodity Credit Corporation (CCC) Loans
Typically, you do not have to report loans you receive as income on your income tax return. However, in cases where you use the future products of your farm to secure a commodity credit corporation loan, you can treat the loan amount as if it is from the sale of that farm product and report the loan amount as income in the tax year you receive it.
To report commodity credit corporation loans as income, you should include the income in Schedule F, line 5a. You do not need approval from the IRS to treat commodity credit corporation loans in this manner. However, once you elect to treat a commodity credit corporation loan in this manner, you generally must treat future commodity credit corporation loans in the same manner.
When you elect to treat a commodity credit corporation loan as income, the amount you report becomes the basis in the farm product. If you repay the loan, redeem the farm product, and sell it, you must report as income the proceeds from the sale less the basis in the farm product. If the proceeds are less than your basis, you can report the loss. You should report either the gain or the loss on Schedule F.
Crop Insurance and Crop Disaster Payments
If you receive insurance payments related to the damage to or loss of crop revenue, you must report those insurance payments as income. You must report the insurance payments as income in the tax year in which they were received.
Insurance proceeds are typically paid as a result of the damage or destruction of crops, or the inability to plant crops, because of drought, flood, or other natural disasters.
Feed Assistance Programs
In the event the Secretary of Disaster determines that a natural disaster has created a livestock emergency, he has the power through the Disaster Assistance Act of 1988 to provide feed assistance, reimbursement payments, and other benefits. In such cases, you should include the following as income:
- The market value of donated feed.
- Any difference between the market value of feed and the price you paid for feed bought at below-market prices.
- Any cost reimbursements you receive.
You must report this income on Schedule F, Part I.
Who can I speak with to get additional help with my tax questions on farming?
If you have farm income and need help with additional questions about agricultural payments or completing your tax return, you can speak with a tax attorney. A tax attorney with knowledge of farm income and the implications will be able to answer your questions and help you complete your return.
You can get in touch with a tax attorney today by calling the phone number located at the top of this web site or by completing the form below. Take the opportunity to get the help you need today by making the call.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.