Income under the cash method includes all the amounts you actually or constructively received during the year in income for that year. If property or services were received then fair market value must be realized.

Constructive receipt of income is stated when the income is constructively received when an amount is credited to your account or made available to you without restrictions. You need not have possession of it. The receipt of a check is constructive receipt of money; even if you do not deposit or cash it in the tax year you received it. An amount credited to your account at a bank, a store, or a grain elevator for example is constructively received in the year it is credited.

The gross income for the tax year includes:

  • 1) Cash and the value of merchandise or other property received during the tax year from the sale of livestock, poultry, vegetables, and fruits that you raised
  • 2) Profit from the sale of all other livestock or other items purchased for resale

To find the profit, deduct the cost or other basis of the property, plus selling expenses, from the sale proceeds. Generally however, the cost of items purchased for resale in the year paid, unless the payment and sale occurred in the same year, cannot be deducted.

    • 3) Breeding fees, fees from rent or lease of animals, machinery, land, and other incidental farm income
    • 4) All subsidy and conservation payments received that are considered income
    • 5) Gross income from other sources

Crop insurance proceeds can be reported in income in the year following the year of the loss under certain conditions. Check with your accountants for all the particulars.


Expenses are the daily costs incurred in running and maintaining a business. An expenditure is also classified about the same as an expense, just a different terminology. It is a cost incurred in the normal course of business to generate income. They are deducted only in the tax year that they are actually paid. You cannot deduct certain pre-paid expenses for supplies until they are actually used or consumed. You cannot use inventory to figure income on the cash method or deduct certain pre-payments of interest.