Louisville, CO asked in Tax Law for Colorado

Q: I inherited a farm for which I have income to report my share of the proceeds from the sale of livestock and coop dist

Do I need to pay self employment tax on this if I don't actually farm the land?

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2 Lawyer Answers
Answered
  • Tax Law Lawyer
  • Englewood, CO
  • Licensed in Colorado

A: If you're not actively participating in the business then no you are not subject to SE tax. Also farms have alternative SE calculations that may come into play. I would suggest hiring a professional to help with this. The Schedule F looks simple enough but there are numerous traps for the unwary.

Answered
  • Tax Law Lawyer
  • Fort Collins, CO
  • Licensed in Colorado

A: Talk to a tax professional for the specifics. Ideally, the tax professional should also be your tax preparer because selections on how the income is reported directly impacts the need for a self employment taxes.

As a general rule of thumb, if you actively farm OR in any way receive profits based on the production from the land a Schedule SE (self employment) must be filed. Note, this includes sharecropping, partnerships/co-ops/clubs, and (most) contract farming. Another good flag is whether you will be filing a Schedule F (farm income) versus another schedule to report the income/loss (e.g. a Schedule E).

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