Elected Farm Income

[Dan]

Question: How do you figure elected farm income to use on Schedule J line 2 when the instructions say: "However, you do not have to include all of your taxable income from farming...on line 2? When reading line 2 instructins it says to include taxable income from farming (Schedule F) and also include the deduction for 1/2 of self-employment tax attributable to farming. There are other items mentioned but these are the only two that apply to my question. Where are the instructions to this however? Hope someone out there knows the answer. Thanks :)

[kcjenkins]

What that means is that the total farm income, plus the SE deduction related to it, is the MAXIMUM that you can put on line 2. But you have the option to 'elect' to use less, if it makes the bottom line better. You can simply start with the max amount, calculate the result, then try it with a smaller number and see if that improves the result. If it does, keep playing with it until you find the ideal amount. If it does not help, just go with the max.

[DANRVAN]

Farm income also includes gain from the sale or other disposition of property (other than land) used regularly for farming.

As KC mentioned you have to play with it to find the right amount to include; a job made easy by software!

[Dan]

Thanks KC for responding. Are you saying that you can just pick a number out of thin air and enter it into line 2 on the schedule J form? The maximum amount is $59,165. If I enter $35,000 in line 2, there is a savings of $2338. Can you do that? To those that see this topic, there is no other income except what is on the Schedule F form and 1/2 of self-employment tax. Thanks for responding.

[mdmcfarland]

Yes, you can use any amount up to the max. Play with the numbers to find the one that gives the best tax advantage.

[Dan]

Thanks to those that have responded to my question. The IRS also told me that you get to determine how much of your EFI you put on line 2 of Schedule J, as long as it's not more than the total on Line 1. The remainder of Line 1, if any, would be taxed at the 2007 rates. So your still paying tax on all the taxable income. The amount you elect to put on Line 2 would then be taxed averaging the amounts for previous years, which if those previous years had lower income, could result in paying less tax overall.