Farm income is the amount you make working on a farm either as a farmer or a tenant. The work might include cultivating, operating, and managing it. The farm can be a dairy, poultry, fruit, stock, fish, and truck farm. Farm income can also be the amount you collected for the sale of crop shares if you participated in the production of the crop. All of this income is then reported on Schedule F, to calculate your gains and losses. Don’t include income from the sales of buildings and structures such as your barn, land or depreciable farm equipment such as an old tractor, and livestock that are used for sport, dairy, sport, and breeding purposes like mares, cows, horses, or chickens that you use for egg production. Sale of the livestock should be reported on form 4797.
If a drought or a flood forces you to sell more livestock than you normally would in one year then you can choose to postpone some of your gain from these sales into the following year. For you to be able to do this you have to meet all the conditions set by the IRS. The area has to be designated as needing federal assistance, the farm has to show that a)under normal circumstances the sale of livestock would have been far less, b)farming is your main trade, and c)you use the cash method of accounting. To make this election for a tax year you have to attach a statement with your tax return explaining the circumstances and the computations for how many animals you sold this year due to the weather, how many you would have sold in one year, and how much of the gain are you going to postpone reporting till next year.
The rent you receive for the usage of your land for farming is rental income unless you physically participate in the production of crops on it then it becomes farm income. Rental income can be in the form of crop shares. Crop shares that you receive as a landlord are reported as gross income the year they are converted to cash or to something that has a cash value. This income is subject to self-employment taxes unless you physically participated in the production of the crops.
If you are a patron of a cooperative association, you may receive patronage dividends as income for buying farm supplies from them. If you also sell your products through the cooperative association, you may receive patronage dividends or per-unit retain certificates as income for it. A per-unit retain certificate is, According to the IRS, "…any written notice that shows the stated dollar amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative." Patronage dividends are usually distributions of money or qualified written notice of allocation, which is taxable in the year it is received and for it to be valid it has to give the patron at least ninety days to redeem it plus it should be accompanied by a written notice of your right of redemption.
Following is a list of other incomes that you may receive and have to report on your tax return:
