IRS Tax Tip 2015-46, March 25, 2015
Farms include ranches, ranges and orchards. Some raise livestock, poultry or fish. 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 10 tax tips to help at tax time:
- 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 animals.
- 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. 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 their wages.
- 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.
- 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 purposes.
- 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.
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Additional IRS Resources:
- Schedule F, Profit or Loss From Farming
- Agriculture Tax Center
- Small Business and Self-Employed Tax Center
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