Farm Income Expense – Pension and Profit-Sharing Plans
Farmers who maintain or participate in retirement arrangements must distinguish between self-employed retirement contributions and employer contributions made for farm employees, as these amounts are reported under different IRS rules. While retirement plans are not part of farm income itself, they can interact with the farming business through allowable deductions.
Key Considerations
Form 1040 and Schedule F:
Farm income and expenses are reported on Schedule F (Form 1040), which flows to Form 1040 to determine net farm profit or loss for sole proprietors and disregarded entities engaged in farming.
Pension and Profit-Sharing Plans:
- Contributions made for the farmer’s own retirement (e.g., SEP IRA, SIMPLE IRA, qualified plans for self-employed individuals) are generally deducted on Schedule 1 (Form 1040), subject to applicable limits. These are not deducted on Schedule F.
- However, employer contributions made for hired farm employees under pension or profit-sharing plans are deductible on Schedule F, Line 23 (Pension and profit-sharing plans).
Reporting Distributions:
Distributions from pension or profit-sharing plans are generally taxable in the year received and reported on Form 1040, typically supported by Form 1099-R. These amounts are not treated as farm income and are not reported on Schedule F.
Interaction with Farm Income:
Retirement plan contributions reduce adjusted gross income (AGI) but do not affect the computation of farm profit or loss on Schedule F. However, changes in AGI may indirectly impact income-based limitations, deductions, and credits.
Source:
Publication 225 (Farmer's Tax Guide)
Form 1040 (U.S. Individual Income Tax Return)
Schedule F (Form 1040) - Profit or Loss From Farming
Disclaimer: Always verify information with the official Federal or State Department of Revenue Forms and Instructions for the current tax year.