Publication 225 - Introductory Material


Introduction

You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards and groves.

This publication explains how the federal tax laws apply to farming. Use this publication as a guide to figure your taxes and complete your farm tax return. If you need more information on a subject, get the specific IRS tax publication covering that subject. We refer to many of these free publications throughout this publication. See chapter 16 for information on ordering these publications.

The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. However, the information given does not cover every situation and is not intended to replace the law or change its meaning. This publication covers subjects on which a court may have rendered a decision more favorable to taxpayers than the interpretation of the Service. Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will continue to present the interpretation of the Service.

The IRS Mission.   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can send us comments from www.irs.gov/formspubs. Click on “More Information” and then on “Give us feedback.

  Or you can write to:

Internal Revenue Service 
Tax Forms and Publications 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.    Visit www.irs.gov/formspubs to download forms and publications. Otherwise, you can go to www.irs.gov/orderforms to order forms or call 1-800-829-3676 to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions.    If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to the above address.

Comments on IRS enforcement actions.   The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities of each agency and rate its responsiveness to small business. If you wish to comment on the enforcement actions of the IRS, you can:
  • Call 1-888-734-3247,

  • Fax your comments to 202-481-5719,

  • Write to 
    Office of the National Ombudsman 
    U.S. Small Business Administration 
    409 3rd Street, S.W. 
    Washington, DC 20416

  • Send an email to ombudsman@sba.gov, or

  • Download the appraisal form at  
    www.sba.gov/ombudsman.

Treasury Inspector General for Tax Administration.   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). You can remain anonymous.

Farm tax classes.   Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. Contact your county or regional extension office for more information.

Rural tax education website.   The Rural Tax Education website is a source for information concerning agriculturally related income and deductions and self-employment tax. The website is available for farmers and ranchers, other agricultural producers, Extension educators, and any one interested in learning about the tax side of the agricultural community. Members of the National Farm Income Tax Extension Committee are contributors for the website and the website is hosted by Utah State University Cooperative Extension. You can visit the website at www.ruraltax.org.

Future Developments

The IRS has created a page on IRS.gov for information about Publication 225, at  
www.irs.gov/pub225. Information about recent developments affecting Publication 225 will be posted on that page.

At the time this Publication went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to www.irs.gov/pub225.

What's New for 2014

The following items highlight a number of administrative and tax law changes for 2014. They are discussed in more detail throughout the publication.

The Agricultural Act of 2014. The Agricultural Act of 2014 repealed direct and countercyclical payments and Average Crop Revenue Election. The Act created price loss coverage payments and agricultural risk coverage payments. For more information, see chapter 3.

Standard mileage rate. For 2014, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56 cents. See chapter 4.

Qualified Principal Residence Indebtedness. The exclusion for the discharge of qualified principal residence indebtedness has expired. For 2014, the amount of discharge of indebtedness from a qualified principal residence has to be included in gross income. See chapter 6.

Decreased section 179 expense deduction dollar limits. The maximum amount you can elect to deduct for most section 179 property you placed in service in 2014 is $25,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $200,000. See chapter 7.

Maximum net earnings. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $117,000 for 2014. There is no maximum limit on earnings subject to the Medicare part (2.9%) or, if applicable, the Additional Medicare Tax (0.9%). See chapter 12.

Social Security and Medicare Tax for 2014. The social security tax rate is 6.2% each for the employee and employer, unchanged from 2013. The social security wage base limit is $117,000.The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2013. There is no wage base limit for Medicare tax. See chapter 13.

What's New for 2015

Maximum net earnings. The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2015 will be discussed in the 2014 Publication 334. See chapter 12.

Social security and Medicare tax for 2015. The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2015 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2015). The Medicare tax rate for 2015 will also be discussed in Publication 51 (Circular A) (For use in 2015). There is no limit on the amount of wages subject to Medicare tax. See chapter 13.

Reminders

The following reminders and other items may help you file your tax return.

 

IRS e-file (Electronic Filing)

e-file

You can file your tax returns electronically using an IRS e-file option. The benefits of IRS e-file include faster refunds, increased accuracy, and acknowledgment of IRS receipt of your return. You can use one of the following IRS e-file options.

  • Use an authorized IRS e-file provider.

  • Use a personal computer.

  • Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site.

For details on these fast filing methods, see your income tax package.

Principal agricultural activity codes. You must enter on line B of Schedule F (Form 1040) a code that identifies your principal agricultural activity. It is important to use the correct code because this information will identify market segments of the public for IRS Taxpayer Education programs. The U.S. Census Bureau also uses this information for its economic census. See the list of Principal Agricultural Activity Codes on page 2 of Schedule F (Form 1040).

Publication on employer identification numbers (EIN). Publication 1635, Understanding Your Employer Identification Number, provides general information on employer identification numbers. Topics include how to apply for an EIN and how to complete Form SS-4.

Change of address. If you change your home address, you should use Form 8822, Change of Addres, to notify the IRS. If you change your business address, you should use Form 8822-B, Change of Address or Responsible Party — Business, to notify the IRS. Be sure to include your suite, room, or other unit number.

Reportable transactions. You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality and for which you paid an advisor a minimum fee, (3) transactions for which you have or a related party has a right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, (4) transactions that result in losses of at least $2 million in any single year or $4 million in any combination of years, and (5) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. For more information, see the Instructions for Form 8886.

Form W-4 for 2014. You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2014. Those employees who owed a large amount of tax or received a large refund for 2013 may need to submit a new Form W-4.

Form 1099-MISC. Generally, file Form 1099-MISC if you pay at least $600 in rents, services, and other miscellaneous payments in your farming business to an individual (for example, an accountant, an attorney, or a veterinarian) who is not your employee. Payments made to corporations for medical and health care payments, including payments made to veterinarians, generally must be reported on Form 1099.

Limited Liability Company (LLC). For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301.7701-3. See Publication 3402 for more details.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.


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