10 Tax Tips for Farmers
There ain’t much an old country boy or girl like you can’t hack – except for a hefty tax bill. Crop problems, hired hands, pregnant livestock and busted tractors all complicate your return. Fortunately, the Internal Revenue Service offers numerous benefits if you own a plantation, ranch, range or orchard to raise livestock, poultry or fish or grow fruits or vegetables.
Here are 10 tips for farmers’ tax returns:
1. Crop insurance proceeds. Insurance payments from crop damage count as income. Generally, report these payments in the year you get them. Damages also include your inability to plant because of drought, flood or other natural disaster.
2. Deductible farm expenses. You can deduct ordinary and necessary expenses you paid for running and operating your farming business. An ordinary expense is a common and accepted cost for a given type of business; a necessary expense means a cost appropriate for your farming business.
3. Employees and hired help. You can deduct reasonable wages you paid to your farm’s full- and part-time workers. You must withhold Social Security, Medicare and income taxes from wages.
4. Sale of items purchased for resale. If you sold livestock or items that you bought for resale, you must report this resale. Your profit or loss is the difference between your selling price and your basis in the item (usually the cost of the item, which may also include other amounts you paid such as sales tax and freight).
5. Repayment of loans. You can only deduct the interest you paid on a loan if you used the loan for your farming business. You can’t deduct interest you paid on a loan that you used for personal expenses.