Hard to believe that this year is coming to a close already. It’s time to catch on up your books, and finalize your budgets from now until the end of the year (and start on next year’s budget). Whether it was a good income year or not, taxes will still need to be filed for your business.
It is important to know some of the main deductions and tax rules that are utilized throughout the farming industry. A few will be reviewed below, but you are encouraged to take a look at the 2017 IRS Farmer’s Tax Guide, Publication 225 that is available here for all you need to know.
If you had a good year, you need to decide how to go about income tax planning. Income includes the sales of raised/grown products, income from custom work or related services, coop distributions, refunds, and reimbursements.
There are two methods for income tax liabilities: prepaying expenses or an expense deduction (Section 179 – limit $510,000). Pre-paying deductions is a good option if you have a solid budget plan. However, make sure that you follow the IRS requirements so you don’t get audited.
You can deduct depreciating items as well. That means any business property that wears out with use, becomes obsolete, and has an economic life greater than a year. This could include things like machinery, breeding animals, and tractors. You can calculate your depreciation deductions using MACRS (Modified Accelerated Cost Recovery System). Employee benefit costs and wages can be considered deductible as well. You will need to have the required Employer Identification Number (EIN) for your taxes in order to qualify.
Take advantage of the resources available to you. Meet with a tax advisor and your lender. They can help you through the red tape to give you the best outcome for your taxes. Do your own research online by reading articles and watching webinars. Take the time to learn about the tax process to help yourself have the best possible outcome.
Shoemaker, Dianne. “Now is the Time for Farm Budgeting.” Farm and Dairy
Spiegel, Julie. “Prepare for Tax Planning Season.” Successful Farming
“Understanding Your Federal Farm Income Taxes.” PennState Extension