At the Federal level these include income taxes, social security and self-employment taxes, and estate taxes. At the State and local level, the most significant taxes include property and income taxes. Other taxes such as excise taxes, corporate income taxes, and retail sales taxes are significant for only a small number of farmers. Tax legislation enacted since 1996 has lowered farmers' Federal income tax liabilities by as much as 10 percent from these levels on a constant-income basis. Estate tax changes have reduced taxes and filing burdens, increased the farm size that can be transferred tax-free across generations, and reduced the need to sell farm assets when estate taxes are owed.
Most farm income is taxed under the individual income tax rather than the corporate income tax.
This is because most farms are operated as sole proprietors. Even farms organized as small business corporations, partnerships, or limited liability companies are taxed on a pass-through basis at the individual level. Most farmers, like the majority of other taxpayers, are taxed at the 15-percent marginal tax bracket. Although most commercial farms report profits, two-thirds of all farm proprietors have taxable farm losses that offset nonfarm income. While in the aggregate, Federal income taxes impose the largest tax burden on the broadest group of farmers, the relative importance of the different taxes varies for individual farmers with the size and other aspects of the farm business and household.