Farms include ranches, ranges and orchards. Some raise livestock, poultry, or fish and
others grow fruits or vegetables. Individuals report their farm income on Schedule F
("Profit or Loss From Farming"). If you own a farm, here are nine tax tips you should
- Crop insurance. Insurance payments from crop damage count as
income. Generally, you should report these payments in the year you get them.
- 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
amounts you paid, such as sales tax and freight.
- 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 be able to delay reporting a gain from the sale of the extra
- Farm expenses. Farmers can deduct ordinary and necessary
expenses they 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.
- Employee wages and benefits. You can deduct reasonable wages
and other compensation you paid to your farm's full- and part-time workers,
including reasonable wages or other compensation you pay to your spouse if a
true employer-employee relationship exists between you and your spouse. You
must withhold Social Security, Medicare, and income taxes from their wages.
You can also deduct the cost of benefits you provide to your full- and
part-time workers (including your spouse if a true employer-employee
relationship exists), such as medical insurance or contributions to a
- 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 loan that you used for personal expenses.
- 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. However, if you don't actively participate in the farm
activity, your losses may be limited.
- 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 one or more of the past three years.
- 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
And, of course, we are always willing to help. If you have questions or want to
discuss your specific situation, please give us a call.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015