For most farm households, farming reduces Federal income tax liabilities

A chart showing the taxable profits and losses of farm sole proprietors, years 1998 to 2010.

U.S. farm households generally receive income from both farm and off-farm activities, and for many, off-farm income largely determines the household’s income tax liability. Since 1980, farm sole proprietors, in the aggregate, have reported negative net farm income for tax purposes, and over the last decade, both the share of farmers reporting losses and the amount of losses reported generally have increased even as farm sector income hits historic highs. In 2010, the latest year for which complete data are available, U.S. Internal Revenue Service data showed that nearly three out of four farm sole proprietors reported a farm loss, for almost $24 billion in losses. The remaining farms reported profits totaling $12.3 billion. Since only about 60 percent of those reporting a farm profit owed any Federal income taxes, only about 19 percent of farm sole proprietors paid any Federal income tax on their farm income in 2010. This chart is found in the February 2013 Amber Waves feature, Federal Income Tax Reform and the Potential Effects on Farm Households.

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