I've recently taken over some clients from a retiring EA. I've noticed him using Form 4835 and Schedule F in reporting non farm income which should have been on a Schedule E or C. Looks like he did this to take advantage of some farm specific rules such as income averaging and paying Commodity wages. I've told the new clients that I will not follow this and in some cases there are material adjustments to be made on some of these returns. Without regard to amending prior returns I am wondering about changing schedules. Can I start reporting on the correct form in 2018? Never ran into this before.
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What is the income derived from ? -
The 4865's were from cash rent for farmland. One Schedule F was horse training and the other was trucking.Comment
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I think you mean Form 4835. Cash rent from farm land should be on form 4835. The bottom line total on 4835 flows to schedule E. This is from the IRS form 4835 instructions. "Landowners and sub-lessors that do not materially participate in the operation or management of the farm (for self-employment tax purposes), file this form to report farm rental income based on crops or livestock produced by the tenant."
As far as "Horse Training", I say Schedule C if its JUST "training". We do have farmers that TRUCK grain, combine, etc., for OTHER farmers, so I can see that income going on their Schedule F if they had actual farm income too. But just Trucking, nah, put it on C.Comment
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Correct, 4835. I had a typing error in the reply. If you read further down on the 4835 instructions under do not use 4835, it states if farmland is rented for flat cash rate which is what this was. Yes, it does end up on the Schedule E anyway but coming from the 4835 makes it eligible for Farm Income averaging among other things which I do not think is correct. I plan to move them to Schedule E. The other ones are being moved to Schedule C if I do the returns.
The lesson I learned is review any prior year returns before agreeing to accept a client. I've found some major abuses in which the clients decided to go elsewhere after I told them they needed to amend. I'm out a lot of non-billed time.Comment
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