This sample return uses actual forms to show you how to prepare
your income tax return. However, the information shown on the
filled-in forms is not from any actual farming operation.
Walter Brown is a dairy farmer and his wife, Jane, is a substitute
teacher for the county school system. They have three children. Their
return has been prepared using the cash method of accounting. See
chapter 3 for an explanation of the cash method and other methods of
Rounding off to whole dollars.
You may round off to the nearest whole dollar on your return and
schedules. This will make it easier to complete your return. To do so,
drop amounts under 50 cents and increase amounts from 50 to 99 cents
to the next dollar. For example, $129.49 becomes $129 and $235.50
If you do round off, do so for all amounts. However, if you have to
add two or more amounts to figure the total to enter on a line,
include cents when adding the amounts and round off only the total.
Losses from operating a farm.
The sample return shows a profit from the operation of the farm.
However, if your deductible farm expenses are more than your farm
income for the year, you have a loss from the operation of your farm.
If your loss 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
If you have an NOL this year, you may be able to reduce your income
(and tax) in other years by carrying the NOL to those years and
deducting it from income.
To determine if you have an NOL, complete your tax return for the
year. You may have an NOL if a negative figure appears on line 37 of
Form 1040. If this is the case, see Losses From Operating a Farm
in chapter 5.
Preparing the Return