The income taxation portion of the Internal Revenue Service Code is found in Title 26, Subtitle A, Chapter 1.  Chapter 1 contains subchapters, which are referred to at times below.  Regulation links are not referred to, but a table of contents to IRS regulations for independent research can be found here.

Sole proprietorships.  If you own an unincorporated direct farm business by yourself, you are a sole proprietor. 

When read in combination, the following links provide a solid background on how to file your income taxes if you are a sole proprietor:

• The IRS maintains a web page for persons starting a small businesses (not farm-specific).  Among the documents available on the small business web page are:

IRS Publication 583 (Starting a Business and Keeping Records)

Publication 334 (Tax Guide For Small Businesses).  

• The IRS web page for sole proprietors outlines the tax forms needed to file an individual income tax return, including income tax, self-employment tax, estimated taxes, social security and medicare taxes, income tax withholding, federal unemployment tax (FUTA), excise taxes, and the filing of informational returns for payment to non-employees and transactions with other persons.  The page is not farmer-specific.

• The IRS  maintains a web page to assist farmers on federal tax-related issues.  On this page you will find forms and publications including Publication 225 (Farmer's Tax Guide).  This guide is specific to tax issues relating to farming, including what records need to be kept, accounting methods, income and expenses, expenses associated with soil and water conservation, asset basis, depreciation/depletion/ amortization, gains and losses, disposition of property, installment sales, casualties/theft/ condemnation, self-employment tax, employment tax, excise tax, estimated taxes, filing a return, and where to get help.

Partnerships.  Subchapter K governs taxation of partners and partnerships.  Earnings are allocated according to each partner's share in the partnership, and each partner is taxed accordingly even if no distribution is made.  Losses are passed through to the individual just as income is, and are deductible by the individual.  Deductions are permitted up to the partner's basis in the partnership.

IRS Publication 541 provides a basic overview of federal taxation of partnerships, and includes topics such as the definition of a partnership, forming and terminating a partnership, partnership distributions, transactions between partners and the partnership, the basis of a partner's interest, disposition of a partner's interest, and tax return forms.

Corporations.  Subchapter A, Part II governs the tax on corporations.  Subchapter C governs taxation of the corporate distributions and adjustment.  A corporation pays taxes on its profits (minus deductible expenses).  Shareholders are taxed when profits are distributed to shareholders in the form of dividends.  If owners of shares work for the corporation, the owners pay individual income taxes on their earnings.

IRS Publication 542 and websites such as Findlaw outline some of the basic tax considerations relevant to corporations.   Forms, instructions, and publications relating to corporate taxes can be found in the topical index to IRS forms under the letter "C."

S-corporations.  Subchapter S of the Internal Revenue Code governs the taxation of S-Corporations.  The earnings of an S-Corporation are allocated on a per share, per day basis, and shareholders are taxed on these earnings even if no distribution is made.  The S-Corporation can itself be taxed if it has earnings and profits, and its passive income is greater than 25% of its gross receipts.  Losses are passed through to the shareholders.

The tax forms for S-Corporations can be found here, and the instructions for filing a federal S-Corporation tax return can be found here.

LLCs.   An LLC may be classified as a sole proprietorship (as an entity to be disregarded as separate from its owner, or "disregarded entity"), partnership, or corporation for federal income tax purposes.  If the LLC has one owner, the IRS automatically will treat the LLC as a sole proprietorship unless the LLC elects to be treated as a corporation.  If the LLC has two or more owners, the IRS automatically will treat the LLC as a partnership unless the LLC elects to be treated as a corporation.  The LLC makes the election for corporate status using Form 8832.  Sole proprietorships or partnerships do not have to file Form 8832.

Single member LLCs that are an individual file an individual tax return (1040, Schedule C, E or F).  Single member LLCs that are corporations file a corporate return (1120 or 1120S).  Multiple member LLCs may file a partnership return.

The IRS has published a 2-page guide on tax liabilities for LLCs, and maintains a web page of useful forms for the LLC.

Cooperatives.  Subchapter T of the Internal Revenue Code governs federal taxation of cooperatives.  A cooperative, as a non-profit, typically is not taxed, but instead any earnings are passed through to individual patrons of the cooperative.  As simple a concept as this may seem, certain applications of the code are complex.  For a primer on the federal taxation of cooperatives, the USDA Rural Development web site contains many publications related to the taxation of cooperative, including Cooperative Information Report 23, The Tax Treatment of Cooperatives, published by the USDA Rural Development progam.  Form 1120-C (and instructions) is the tax return used for cooperatives. 

IRS Publication 225 (Farm Income) and the instructions to Form 1099-patr (taxable distributions made from cooperatives) cover how patrons of a cooperative should report income.

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