There are three main factors that have an impact on how farmers are impacted by the federal tax code. The first is that most farms file through the individual code, not the corporate code. The second is that the vast majority of the average farm’s assets are tied up in illiquid long-term assets. The third is that farm income is predictably unpredictable.
During the Agriculture and Tax Reform: Opportunities for Rural America hearing before the House Committee on Agriculture on April 5, Dr. James Williamson of the Agriculture Department’s Economic Research Service explained that “the vast majority of farms are organized as pass-through entities that are not subject to income tax themselves. Rather, the owners of the entities are taxed individually on their share of income.” That statement is backed up by data from the 2012 Census of Agriculture, which details that 93 percent of U.S. farms, representing 72 percent of total sales, filed through the individual code, either as sole proprietors or partnerships.