tractor at work on farm

Cook and Co. Enrolled Agents are licensed by the U.S. Treasury Department to represent taxpayers before the Internal Revenue Service (IRS).

Farm Tax Information

We experienced severe droughts in many parts of the United States.

As a result of the droughts, many cattle, horse and other livestock farmers were forced to sell off parts of their herds prematurely and many crop growers received crop insurance.

Has your county been declared a Federal Disaster Area? Special rules apply to Presidentially declared disaster area losses. A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

Farming and Tax Information

Patronage Dividends
Do you know what to do with your 1099-PATR? If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends. If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative.

Cancellation of Debt
If your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Report the canceled amount on line 10 of Schedule F if you incurred the debt in your farming business. If the debt is a non-business debt, report the canceled amount on line 21 of Form 1040.

Form 1099-C
If a federal agency, financial institution, or credit union cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of debt canceled is shown in box 2.
Items Purchased for Resale

If you use the cash method of accounting, you can deduct the cost of livestock and other items purchased for resale in Part I of Schedule F in the year of sale. This cost includes freight charges for transporting the livestock to the farm. Ordinarily, this is the only time you can deduct the purchase price.

Example:

You report on the cash method. In 2000, you buy 50 steers you will sell in 2001. You will report the sales price minus the purchase price (and any freight cost) as income in Part I of your 2001 Schedule F.

Items Purchased for Resale
When do you deduct the cost of livestock and other items? If you use the cash method of accounting, you can deduct the cost of livestock and other items purchased for resale in Part I of Schedule F in the year of sale.

Prepaid Farm Expenses
Do you buy supplies in advance? There may be a limit on your deduction for prepaid farm supplies if you use the cash method of accounting to report your income and expenses. This limit will not apply, however, if you meet one of the exceptions, described later.
Cancellation of Debt
Have you had a portion of a loan forgiven? If your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes.

Disaster Area Losses
Has your county been declared a Federal Disaster Area? Special rules apply to Presidentially declared disaster area losses. A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

Net Operating Losses
Did you have a really bad year? If your deductible loss from operating your farm is more than your other income for the year, you may have a net operating loss (NOL). You may also have an NOL if you had a personal or business-related casualty or theft loss that was more than your income.

Crop Insurance and Crop Disaster Payments
Are these payments taxable? You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood, or any other natural disaster.

Farm Income Averaging
If you are engaged in a farming business, you may be able to average all or some of your current year's farm income by shifting it to the 3 prior years (base years). The term "farming business " is defined in the instructions for Schedule J (Form 1040).

Who Can Use Farm Income Averaging

You can elect to use farm income averaging if, in the year of the election, you are engaged in a farming business as an individual, a partner in a partnership, or a shareholder in an S corporation. You do not need to have been engaged in a farming business in any base year.

Who Cannot Use Farm Income Averaging

Corporations, partnerships, S corporations, estates, and trusts cannot use farm income averaging.

Farm Income Averaging
Is your profit greater than normal? If you are engaged in a farming business, you may be able to average all or some of your current year's farm income by shifting it to the 3 prior years (base years).
If you have questions about the related party rules, contact your Agent.
Buddy Fricke, EA

Buddy Fricke, EA

Accredited Tax Advisor

Buddy Fricke, EA

Accredited Tax Advisor
Buddy Fricke, EA

Buddy is a graduate of Auburn University. He holds a Bachelor of Science degree in Mathematics.

Direct Phone: (256) 586-4141
Mary L. Penton, EA

Mary L. Penton, EA

Tax Department

Mary L. Penton, EA

Tax Department
Mary L. Penton, EA

Mary is a graduate of the University of Alabama Huntsville. She holds a Bachelor of Science in Accounting.

Direct Phone: (256) 586-4135
Anthony Nash, CPA

Anthony Nash, CPA

Chartered Global Management Accountant

Anthony Nash, CPA

Chartered Global Management Accountant
Anthony Nash, CPA

Anthony is a graduate of the University of Alabama in Tuscaloosa. He holds a Bachelor of Science in Accounting.

Direct Phone: (256) 586-4153
Jonathan R. Neighbors, EA

Jonathan R. Neighbors, EA

Tax Department

Jonathan R. Neighbors, EA

Tax Department
Jonathan R. Neighbors, EA

Jonathan is a 2005 graduate of the University in Tuscaloosa. He received a Bachelor of Science degree in Accounting.

Direct Phone: (256) 586-4157