IRS Tax Tip

If you earn money managing or working on a farm, you are in the farming business. Farms include plantations, ranches, ranges and orchards. Farmers may raise livestock, poultry or fish, or grow fruits or vegetables. Here are 10 things about farm income and expenses that the IRS wants you to know.

1. Crop insurance proceeds.  Insurance payments from crop damage count as income. They should generally be reported the year they are received.
2. Deductible farm expenses.  Farmers can deduct ordinary and necessary expenses as business expenses. An ordinary farming expense is one that is common and accepted in the farming business. A necessary expense is one that is appropriate for that business.
3. Employees and hired help.  You can deduct reasonable wages you paid to your farm’s full and part-time workers. You must withhold Social Security, Medicare and income taxes from your employees’ wages.
4. Items purchased for resale.  If you purchased livestock and other items for resale, you may be able to deduct their cost in the year of the sale. This includes freight charges for transporting livestock to your farm.
5. Repayment of loans. You can only deduct the interest you paid on a loan if the loan proceeds are used for your farming business. You cannot deduct interest on a loan used for personal expenses.
6. Weather-related sales.  Bad weather may force you to sell more livestock or poultry than you normally would. If so, you may be able to postpone reporting a gain from the sale of the additional animals.
7. Net operating losses.  If deductible expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
8. Farm income averaging.  You may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may lower your taxes if your farm income is high in the current year and low in one or more of the past three years. This method does not change your prior year tax. It only uses the prior year information to figure your current year tax.
9. Fuel and road use.  You may be able to claim a tax credit or refund of federal excise taxes on fuel used on your farm for farm work.
10. Farmers Tax Guide.  More information about farm income and deductions is in Publication 225, Farmer’s Tax Guide. You can download it at IRS.gov, or call the IRS at 800-TAX-FORM (800-829-3676) to have it mailed to you.

IR-2015-106, Sept. 4, 2015

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning October 1, 2015.  The rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000
• three (3) percent for underpayments; and
• five (5) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 1 2015 to take effect Aug. 1, 2015, based on daily compounding.

Revenue Ruling 2015-17 announcing the rates of interest is attached and will appear in Internal Revenue Bulletin 2015-39, dated Sept. 28, 2015.

Identity theft places a burden on its victims and presents a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen social security number to file a tax return claiming a fraudulent refund.

The IRS combats tax-related identity theft with an aggressive strategy of prevention, detection and victim assistance. We are making progress against this crime, but it remains one of our highest priorities. And, if you become a victim, we are committed to helping you resolve your case as quickly as possible.

The IRS, the states and private-sector partners have announced new steps to fight identity theft and protect taxpayers.

Are you a victim of tax-related identity theft?

Review the following resource information:

• Taxpayer Guide to Identity Theft
• Publication 5027 Identity Theft Information for Taxpayers (PDF)
• Data Breach: Tax-Related Information
• Identity Protection Tips

Identity theft information for tax preparers and businesses

• Identity Theft Information for Tax Preparers
• Publication 5199 Tax Preparer Guide to Identity Theft (PDF)
• Information for businesses about data breaches and identity theft
• Tax Practitioner Guide to Business Identity Theft

What the IRS is doing to combat identity theft

• What we’re doing to combat identity theft
• Special identity theft enforcement efforts
• Law Enforcement Assistance Program

Additional Identity Theft Resources

• Identity Theft News and Outreach
• Federal Trade Commission
• Social Security Administration

Remember:
The IRS doesn’t initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood, or any other natural disaster.

Note: You can request income tax withholding from crop disaster payments you receive from the federal government. Use Form W-4V, Voluntary Withholding Request (PDF). Refer to How to Get Tax Help in Publication 225 for information about ordering the form.

You May Choose To Postpone Reporting Until The Following Year

If you use the cash method of accounting and receive crop insurance proceeds in the same tax year in which the crops are damaged, you can choose to postpone reporting the proceeds as income until the following tax year. You can make this choice if you can show you would have included income from the damaged crops in any tax year following the year the damage occurred.

How To Postpone Reporting Of Crop Insurance Proceeds

To choose to postpone reporting crop insurance proceeds received in the current year, report the amount you received on line 8a of Schedule F (PDF), but do not include it as a taxable amount on line 8b. Check the box on line 8c and attach a statement to your tax return. It must include your name and address and contain the following information:

• A statement that you are making a choice under IRC section 451(d) and Treasury Regulation section 1.451-6
• The specific crop or crops destroyed or damaged
• A statement that under your normal business practice you would have included income from the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged
• The cause of the destruction or damage and the date or dates it occurred
• The total payments you received from insurance carriers, itemized for each specific crop and the date you received each payment
• The name of each insurance carrier from whom you received payments

There may be a limit on your deduction for prepaid farm supplies if you use the cash method of accounting to report your income and expenses. This limit will not apply, however, if you meet one of the exceptions, described later.

Deposits are not considered prepaid farm expenses.

What is a Prepaid Farm Expense

Prepaid farm supplies are amounts you paid during the tax year for the following items:

• Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year
• Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business that would be deductible in the following year if you had capitalized the cost and deducted it ratably (for example, monthly) over the lesser of 12 months or the useful life of the poultry
• Poultry bought for resale and not resold during the year

What is Not a Prepaid Farm Expense

Prepaid farm supplies do not include any amount paid for farm supplies on hand at the end of the tax year that you would have consumed if not for a fire, storm, flood, other casualty, disease, or drought.

Deduction Limit

You can deduct an expense for prepaid farm supplies that does not exceed 50% of your other deductible farm expenses in the year of payment. You can deduct an expense for any excess prepaid farm supplies only for the tax year you use or consume the supplies.

The cost of poultry bought for use (or for both use and resale) in your farm business and not allowed in the year of payment is deductible in the following year. The cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry.

During its existence, a tax-exempt agricultural or horticultural organization has numerous interactions with the IRS – from filing an application for recognition of tax-exempt status, to filing the required annual information returns, to making changes in its mission and purpose. The IRS provides information, explanations, guides, forms and publications on all of these subjects – they are available through this IRS Web site. The illustration below provides an easy-to-use way of linking to the documents most organizations will need as they proceed though the phases of their “life cycle.” You can also view a graphical depiction [LINK] of the chart, with links to our website.

IR-2015-29, Feb. 13, 2015

WASHINGTON —The Internal Revenue Service today made it easier for small business owners to comply with the final tangible property regulations.

Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season. The new procedure allows small businesses to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after Jan. 1, 2014.

Also, the IRS is waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.

“We are pleased to be able to offer this relief to small business owners and their tax preparers in time for them to take advantage of it on their 2014 return,” said IRS Commissioner John Koskinen. “We carefully reviewed the comments we received and especially appreciate the valuable feedback provided by the professional tax community on this issue.”

The new simplified procedure is generally available to small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less. Details are in Revenue Procedure 2015-20, posted today on IRS.gov.

The revenue procedure also requests comment on whether the $500 safe-harbor threshold should be raised for businesses that choose to deduct, rather than capitalize, certain capital expenses.