How do I know if my business qualifies as farming?
A business qualifies as a farming operation if it involves the trade or business of cultivating land or raising/harvesting agricultural or horticultural commodities. According to IRS guidelines, farming includes activities such as:
- Operating a nursery or sod farm
- Raising or harvesting trees bearing fruits, nuts, or other crops
- Raising ornamental trees (excluding evergreen trees over 6 years old when severed)
- Raising, shearing, feeding, caring for, training, and managing animals
Additionally, farming includes the production of plants such as fruit trees, vines, bushes, sod, and crops that yield more than one harvest. The IRS considers you to be producing property if you raise or grow any agricultural or horticultural commodity, including plants and animals.
For tax purposes, farmers must report their income and expenses using Schedule F (Form 1040), Profit or Loss From Farming. This form is specifically designed for farming businesses and allows you to report farm income, deductions, and losses. If you are married and file jointly, you may elect to divide farm income, deductions, and losses between spouses and file separate Schedule F forms.
It’s important to note that farming businesses with average annual gross receipts of $31 million or less over the past three years are generally not subject to the uniform capitalization rules, unless they are tax shelters. However, if you produce real property or tangible personal property for resale, you may be subject to these rules.
For detailed guidance on farm tax matters, refer to Publication 225 (Farmer’s Tax Guide), which provides comprehensive information on how federal tax laws apply to farming operations.
Source:
Publication 225 (Farmer’s Tax Guide)
Schedule F (Form 1040), Profit or Loss From Farming
Forms and Publications
Disclaimer: Always verify information with official Federal or State Department of Revenue Forms and Instructions.