All your farm tax questions answered

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2015
calculator and notebook

During the past six weeks, Ohio State University Extension has been offering a series of two-day workshops across Ohio for income tax preparers. I, along with Barry Ward, have the privilege of teaching the Agricultural & Natural Resources Tax section at these workshops.

As we have been teaching these workshops, our team has been asked a variety of questions so today I would like to share a few of these with you.

Question from a farmer in Ashland County: I received both a CFAP 1 and CFAP 2 payment from the Farm Service Agency for marketing disruptions caused by the coronavirus pandemic. Is this taxable income?

The answer is yes. The payments received from the Coronavirus Food Assistance program, or CFAP, programs are taxable income in the year the payment is received. A 1099-G will be issued to you by the Farm Service Agency.

Question from a farmer in Wayne County: In the past, I have used the 1099-MISC to report to the IRS the payments I made to hire a neighboring farmer to combine my corn and for the payments I make to other independent contractors such as my accountant and crop consultant which are over $600 for the year. I heard that I don’t use this form anymore, is this true?

Yes. This is a major change that happened this summer that many of us might not have caught. Starting in 2020, payments to service providers which are considered nonemployee compensation are now reported on the IRS 1099-NEC form.

For those with a lot of gray in your hair, you may remember this form was used until 1982 before it was merged into the 1099-MISC. The return back to using the 1099-NEC was made as the reporting deadline for nonemployee compensation was changed to Jan. 31 versus the other items which are reported on the 1099-MISC which have a reporting deadline of Feb. 28, or March 31 if filing electronically. The 1099-MISC will still be used to report farm rents and crop insurance payments over $600 and oil and gas royalty payments over $10. For additional information on the new IRS 1099-NEC, you can read a complete article I wrote on this at: go.osu.edu/1099-nec

Question from a farmer in Tuscarawas County: I plan on buying a new feed grinder before the end of the year. How much accelerated Section 179 depreciation can I use?

The maximum amount you can elect to deduct for most section 179 property you placed in service in 2020 is $1.04 million. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2.59 million. Also, remember this deduction is limited to the taxable income from your business.

Question from a farmer in Belmont County: I usually get a Farmers Tax Guide from my local extension office but I am trying to limit any visits due to COVID-19. Can I get the tax guide online?

Yes, the 2020 Farmers Tax Guide is online and it can be accessed at: https://www.irs.gov/pub/irs-pdf/p225.pdf.

Question from a new farmer in Marion County:  I am new to all this. Where can I learn more about farm taxes? An excellent reference is the Farmers Tax Guide referenced earlier in this article.

Producers can also check out the Rural Tax Education web site has resources for agriculturally related income and self-employment tax information that is both current and easy to understand: https://ruraltax.org/.

For those desiring a more in-depth session on farm taxes, the OSU Agricultural and Natural Resources Income Tax Issues Webinar will be from 8:45 a.m. to 3:30 p.m. Dec. 18. The webinar focuses on issues specific to farm tax returns related to agriculture and natural resources and will highlight timely topics and new regulations related to COVID-related legislation. The program is an intermediate-level course for tax preparers whose clients include farmers and rural landowners. Farmers who prepare and file their own taxes will also benefit from the webinar. The cost of this program is $150 and registration can be made at: go.osu.edu/agissues2020

In closing, I hope each of you have a wonderful Christmas season and I would like to share a quote frequently ascribed to Albert Einstein: “The hardest thing to understand in the world is the income tax.”

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David Marrison is an associate professor and Extension educator, Agriculture & Natural Resources, Ohio State University Extension. He can be reached at 740-622-2265 or marrison.2@osu.edu.

1 COMMENT

  1. I was told that if I bought a truck and make payments on the truck That I could take the full amount of truck cost off that year and the payments off the next years as I made them . Even though only payments was the 1st year. To me that is double dipping and doesnt seem right . Because your taking money you did not spend off on taxs . So is this legal ?

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