Farms include ranches, ranges and orchards. While some may raise cattle,
poultry or fish and others grow fruits or vegetables, all will report their
farm income on Schedule F, Profit or Loss from Farming. If you own a farm or
ranch, here are 10 tax tips:
1. Crop insurance. Insurance
payments from crop damage count as income.
Generally, you should report these payments in the year you get them.
2. Sale of items purchased for resale. If you sold
livestock or items that you bought for resale, you must report the sale. Your
profit or loss is the difference between your selling price and your basis in
the item. Basis is usually the cost of the item. Your cost may also include
other expenses such as sales tax and freight.
3. Weather-related sales. Bad weather such as a drought
or flood may force you to sell
more livestock than you normally would in a year. If so, you
may defer tax on the gain from the sale of the extra animals.
4. Farm expenses. Farmers can deduct ordinary
and necessary expensesthey paid for their business.
An ordinary expense is a common and accepted cost for that type of business. A
necessary expense means a cost that is proper for that business.
5. Employee wages. You can deduct wages you paid to your
farm’s full- and part-time workers. You must withhold Social Security, Medicare
and income taxes from their wages.
6. Loan repayment. You can only deduct the interest you
paid on a loan if the loan is used for your farming business. You can’t deduct
interest you paid on a personal loan.
7. Net operating losses. If your expenses are more
than income for the year, you may have a net
operating loss. You can carry that loss over to other years and
deduct it. You may get a refund of part or all of the income tax you paid in
prior years. You may also be able to lower your tax in future years.
8. Farm income averaging. You may be able to average some or all of the current year's farm income by spreading it out
over the past three years. This may cut your taxes if your farm income is high
in the current year and low in the prior three years.
9. Tax credit or refund. You may be able to claim a
tax credit or refund of excise taxes you paid on fuel
used on your farm for farming purposes.
10. Farmers Tax Guide. For more details on this topic see Publication
225, Farmer’s Tax Guide. You can get it on IRS.gov/forms anytime. You can order it on IRS.gov/orderforms to have it mailed to you.
Each and every taxpayer has a set of fundamental rights they should be
aware of when dealing with the IRS. These are your Taxpayer
Bill of Rights. Explore your rights and our obligations to protect
them on IRS.gov.
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