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2020 Publication Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8 Draft Ok to Print AH XSL/XML Fileid: … tions/P225/2020/A/XML/Cycle01/source (Init. & Date) _______ Page 1 of 94 15:24 - 15-Oct-2020 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Publication 225 Cat. No. 11049L Contents Introduction .................. 1 Department of the Farmer's What's New for 2020 ............. 2 Treasury Internal What's New for 2021 ............. 3 Revenue Tax Guide Service Reminders ................... 3 Chapter 1. Importance of Records .... 3 For use in preparing Chapter 2. Accounting Methods ..... 5 2020 Returns Chapter 3. Farm Income .......... 8 Chapter 4. Farm Business Expenses ......... 18 Acknowledgment: The valuable advice and assistance given us each Chapter 5. Soil and Water year by the National Farm Income Tax Extension Committee is Conservation Expenses ....... 27 gratefully acknowledged. Chapter 6. Basis of Assets ....... 30 Chapter 7. Depreciation, Depletion, and Amortization ........... 36 Chapter 8. Gains and Losses ...... 48 Chapter 9. Dispositions of Property Used in Farming ..... 56 Chapter 10. Installment Sales ..... 59 Chapter 11. Casualties, Thefts, and Condemnations ............ 65 Chapter 12. Self-Employment Tax ... 73 Chapter 13. Employment Taxes .... 78 Chapter 14. Fuel Excise Tax Credits and Refunds ......... 84 Chapter 15. Estimated Tax ....... 87 Chapter 16. How To Get Tax Help ... 89 Index ..................... 92 Introduction You are in the business of farming if you culti- vate, 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 or- chards 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 publi- Get forms and other information faster and easier at: cation reflect the Internal Revenue Service's in- • IRS.gov (English) • IRS.gov/Korean (한국어) terpretation of tax laws enacted by Congress, • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) Treasury regulations, and court decisions. How- • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) ever, the information given does not cover ev- ery situation and is not intended to replace the Oct 15, 2020 Page 2 of 94 Fileid: … tions/P225/2020/A/XML/Cycle01/source 15:24 - 15-Oct-2020 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. law or change its meaning. This publication Farm tax classes. Many state Cooperative This limit is reduced by the amount by which the covers subjects on which a court may have ren- Extension Services conduct farm tax work- cost of the property placed in service during the dered a decision more favorable to taxpayers shops in conjunction with the IRS. Contact your tax year exceeds $2,590,000. Also, the maxi- than the interpretation by the IRS. Until these county or regional extension office for more in- mum section 179 expense deduction for sport differing interpretations are resolved by higher formation. utility vehicles placed in service in tax years be- court decisions, or in some other way, this pub- ginning in 2020 is $25,900. See chapter 7. lication will continue to present the interpreta- Rural Tax Education website. The Rural Tax Expiration of the treatment for certain race tion by the IRS. Education website is a source for information horses. The 3-year recovery period for race concerning agriculturally related income and horses 2 years old or younger will not apply to The IRS Mission. Provide America's taxpay- deductions and self-employment tax. The web- horses placed in service after December 31, ers top-quality service by helping them under- site is available for farmers and ranchers, other 2020. See chapter 7. stand and meet their tax responsibilities and en- agricultural producers, Extension educators, force the tax law with integrity and fairness to and anyone interested in learning about the tax Qualified improvement property. The all. side of the agricultural community. Members of CARES Act revised the provision in the Tax the National Farm Income Tax Extension Com- Cuts and Jobs Act (TCJA) to change the treat- Comments and suggestions. We welcome mittee are contributors for the website and the ment of qualified improvement property (as de- your comments about this publication and your website is hosted by Utah State University Co- fined in section 168(e)(6) of the Internal Reve- suggestions for future editions. operative Extension. You can visit the website nue Code) placed in service after December 31, You can send us comments through at www.ruraltax.org. 2017, to 15-year property under MACRS. See IRS.gov/FormComments. Or you can write to: chapter 7. Internal Revenue Service, Tax Forms and Pub- New rules for net operating loss (NOL) car- lications, 1111 Constitution Ave. NW, IR-6526, rybacks. The CARES Act revised the provi- Washington, DC 20224. Future Developments sions of the TCJA related to NOL carrybacks to allow taxpayers to carryback NOLs including Although we can’t respond individually to The IRS has created a page on IRS.gov for each comment received, we do appreciate your non-farm NOLs arising from tax years 2018, information about Pub. 225 at 2019, and 2020 for 5 years. See chapter 11. feedback and will consider your comments as IRS.gov/Pub225. Information about recent we revise our tax forms, instructions, and publi- developments affecting Pub. 225 will be posted Maximum net earnings. The maximum net cations. We can’t answer tax questions sent to on that page. self-employment earnings subject to the social the above address. security part (12.4%) of the self-employment tax Tax questions. If you have a tax question is $137,700 for 2020, up from $132,900 for not answered by this publication or the How To 2019. There is no maximum limit on earnings Get Tax Help at the end of this publication, go What's New for 2020 subject to the Medicare part (2.9%) or, if appli- to the IRS Interactive Tax Assistant page at cable, the Additional Medicare Tax (0.9%). See The following items highlight a number of chapter 12. IRS.gov/help/ITA where you can find topics us- administrative and tax law changes for 2020. ing the search feature or by viewing the catego- They are discussed in more detail throughout Changes to Schedule SE (Form 1040). ries listed. the publication. Schedule SE (Form 1040) has a new Part II to allow self-employed persons to figure a maxi- Ordering forms and publications. Visit Coronavirus Food Assistance Program mum amount of self-employment tax payments IRS.gov/FormsPubs to download forms and (CFAP). The CFAP provides direct payments which may be deferred. Schedule SE (Form publications. Otherwise, you can go to IRS.gov/ to producers of eligible agricultural commodities 1040) has also been revised into a single form OrderForms to order current and prior-year adversely affected by the conronavirus format and each person with net earnings from forms and instructions. Your order should arrive (COVID-19) pandemic to help offset sales los- self-employment will use a separate Sched- within 10 business days. ses and increased marketing costs associated ule SE (Form 1040). See the Instructions for with the COVID-19 pandemic. Schedule SE (Form 1040) for more information. Comments on IRS enforcement actions. CFAP payments are agricultural program Credits for self-employed persons. New re- The Small Business and Agricultural Regulatory payments that you must include in gross in- fundable credits are available to certain Enforcement Ombudsman and 10 Regional come. Report the full amount of your CFAP pay- self-employed persons impacted by the corona- Fairness Boards were established to receive ments on Schedule F (Form 1040), lines 4a and virus. See the Instructions for Form 7202 for comments from small business about federal 4b. See the Instructions for Schedule F (Form more information. agency enforcement actions. The Ombudsman 1040). will annually evaluate the enforcement activities Standard mileage rate. For 2020, the stand- COVID-19 related employment tax credits of each agency and rate its responsiveness to ard mileage rate for the cost of operating your and other tax relief. small business. If you wish to comment on the car, van, pickup, or panel truck for each mile of • The Families First Coronavirus Response enforcement actions of the IRS, you can: business use is 57.5 cents. See chapter 4. Act (the “FFCRA”), enacted on March 18, • Call 888-734-3247, 2020, provides small and midsize employ- Increase business interest expense. The • Fax your comments to 202-481-5719, ers refundable tax credits that reimburse Coronavirus Aid, Relief, and Economic Security • Write to: them for the cost of providing paid sick and Act (CARES Act) retroactively increases the Office of the National Ombudsman family leave wages to their employees for amount of business interest expense that may U.S. Small Business Administration leave related to COVID-19. be deducted for tax years beginning in 2019 409 3rd Street SW • The CARES Act, enacted on March 27, and 2020 by computing the section 163(j) limi- Washington, DC 20416, 2020, provides eligible employers with an tation using 50% (instead of 30%) of your ad- • Send an email to [email protected], employee retention tax credit if they keep justable taxable income. The limitation doesn’t or employees on their payroll, despite experi- apply to most farms.
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