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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

One More Reason Why Tax Reform is Going After Cash Method

Mar 24, 2014

The IRS issues data regarding income tax information for filers every year. I ran across a posting on the net farm income and loss reported by Schedule F farmers for 2011 and 2012. During each of these years, the USDA estimated that farmers had net farm income in excess of $120 billion.

However, on schedule Fs reported by individual farmers, they showed a net loss in 2011 of about $7.11 billion and for 2012 a net loss of $5.06 billion. There were about 1.845 million schedule Fs filed for these years. Many farmers now report their farm income using a flow-through entity such as an S corporation, LLC or partnership. This income would not be reported as part of this Schedule F loss. However, based upon our history with our farmers who use flow-through entities, their bottom line income or loss is normally not all that much different from Schedule F filers (other than hobby farmers which could distort this number a bit).

Let's assume that these farmers in fact report more income leading to net farm taxable income of $20 billion. This still leaves about $100 billion of net farm income that Congress thinks they can get their hands on. Over a 10 year period assuming an average 30% tax rate, this is about $30 billion of extra taxes flowing to the IRS each year. Over 10 years this adds up to $300 billion and that is one of the reasons why Congress wants to change higher revenue farmers to the accrual method of accounting.

Although this may be a simplistic calculation and does not factor in possible extra Section 179, it is a lot of money and if tax reform goes through, this extra income may be tough for them to pass up.

We will keep you posted on their efforts.

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