For those of you who filed an extension on your taxes, Tax Extension Day (October 15) is right around the corner!
For the rest of you, tax season might seem like a far-off concern, but it’s never too early to start getting your farm’s finances in order. While we’re not CPAs and this isn’t official tax advice, we’re here to share some best practices we’ve seen help farmers navigate this time of year.
Think of this as a helpful guide rather than a strict rulebook—and consider consulting a professional for specific guidance tailored to your situation.
Understanding Tax Forms
First up, understanding the key tax forms for farmers is crucial. The Schedule F—Profit & Loss From Farming—is specifically for farmers. If you’re working with a non-agriculture CPA, make sure they’re using this form instead of Schedule C for your farm income. Schedule C is meant for other types of businesses; make sure you fill out the correct one.
You’ll also need Form 4562 for depreciation, which covers the gradual expense of capital assets. Depreciation can get complicated, so a simple “half-year straight line depreciation” method might be a good start if you’re handling it yourself.
For personal tax returns, Form 1040 will be essential, especially since farm income often shows up here if your farm is an LLC.
If you have any side businesses—like value-added products or agritourism—don’t forget Schedule C for those ventures. And for anyone employing staff or contractors, W-2s and 1099s need to be filed by January 31. Most payroll software can handle these automatically, but be sure to keep an eye on deadlines.
Quarterly Tax Payments
Profitable businesses (those that owe some income tax) are required to make estimated quarterly tax payments. Farms are only required to make one estimated payment by January 15 (per the IRS, you’re a farm if at least two-thirds of your gross income is from farming). No need to worry about payments in April, July, and October. When you file your official, final tax return on April 15 (or October 15, if you’re reading this blog post), your payment from your estimated payment will be taken out of what you owe.
How to Maximize Your Deductions
Maximizing your deductions is all about meticulous record-keeping. Don’t overlook joint personal and farm expenses if you live on the farm—items like mortgage interest and utilities could be partly deductible. Vehicle mileage is also worth tracking, especially if you have older vehicles. And keep in mind, while loan principal isn’t deductible, loan interest is. Cash expenses should be noted too.
Keeping your receipts is vital—aim for the last seven years. Whether you use physical folders or an online receipt management tool like Hubdoc, having organized records will make tax season smoother.
When it comes to depreciation, understand that capital assets—like breeding stock or equipment—need to be depreciated over their useful life. Agriculture depreciation can be tricky, with different methods available. If you have significant capital to depreciate, consulting a CPA might be worth the investment.
Don’t forget about state and local taxes. Most states offer agriculture property tax exemptions, but you need to apply for them. Also, check your local regulations on sales taxes for agricultural products and any exemptions that might apply to your farm purchases.
We hope this guide gives you a solid starting point. Remember, we’re not tax professionals, but we want to help make this season a little less daunting. For tailored advice, always consult with a certified professional.
National Farmer’s Day Special
We aren’t tax professionals, but we do help you get your bookkeeping in order to ease into a smooth tax season.
We are offering a special for farmers to join our Financial Management service for 20% off your first three months until October 12. Here’s a reason why our farmers never leave us because we save them time (5-10 hours weekly) and money (on average our farmers are 5% more profitable).
If you want to get started, fill out the form below and here’s to a smooth tax season ahead!