Phoenix CPA | Farmer Tax Tips
Farms include ranches, ranges and orchards. Some farms raise livestock, poultry or fish. Individuals report the revenues and expenses from their farm activities on Schedule F, Profit or Loss from Farming. If you own and operate a farm, here a some tips to help you come tax season.
- Insurance payments you receive from crop damage count as income to you. You should report these payments as income in the year you receive the payments.
- If you sell livestock or items that you purchased for resale, you must report the income from those sales.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 but may also include other amounts you paid to acquire the item such as sales tax and freight.
- Bad weather events such as a drought or flood may force you to sell more livestock than you normally would in a normal year. If so, you may be able to delay reporting the gain from the sale of the extra livestock.
- Farmers are allowed to deduct ordinary and necessary expenses they paid to operate their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense is one that is proper for that business.
- Farmers can also deduct wages they paid to their full and part time workers. You must withhold Social Security, Medicare and income taxes from their wages.
- Interest paid on a loan used for the farming business is deductible. You cannot deduct the interest paid on personal loans.
- You may be able to average some or all of the current year’s farm income by spreading out over the past 3 years. This may cut your taxes if your farm is high in the current year and low in one or more of the past three years.
If you would like more information, feel free to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.