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Farmers: 7 Tips to Prepare for Tax Day

By    |   Tuesday, 21 Feb 2017 11:06 AM

Farmers receive better tax benefits with good strategies throughout the year, but they often still need tips when filing their returns to reduce taxes. Planning and preparation make the upcoming Tax Day less stressful.

Owners or tenants who operate or manage farm businesses are required to file federal tax returns. The tax laws apply to farmers involved in dairy, livestock, poultry, fish, fruit, vegetables, orchards, ranches, and ranges.

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Filing taxes can bring more money into farmers’ pockets when done correctly. These seven tips to prepare for Tax Day will help lessen the burden and promise to increase your income:

1. Farmers Tax GuidePublication 225 is available through the IRS and can make a farmer’s tax preparation so much easier. The guide includes worksheets, depreciation tables, and farm codes that are easy to understand.

2. Keep good records — A good system ensures all your expenses are detailed. If not managed properly, small purchases could easily be left out, L.R. Borton of Michigan State University points out.

3. Take advantage of credits — Refundable credits, such as the earned income credit, may significantly reduce your taxes. There are also education credits if your children are students, health insurance credits for small business farmers to offset the cost of health insurance to employees, and alternative energy credits.

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4. Issue Form 1099-MISC — These forms are necessary for rents or services when payments account for more than $600 for each client. This does not include payments to corporations. Check with a tax professional if you have questions. Penalties can amount to up to $500 for failure to file or give a form to the required recipient.

5. Write-offs Claim expenses and losses on Schedule F if your farm is a business. The form determines if the farm is operated at a profit or loss. Keeping track of sales, inventory, and expenses helps. Farmers can write off new purchases of farm equipment, but they must use depreciation tables.

6. Livestock sales — Farmers with livestock can defer tax gains if forced to sell more animals than usual because of weather conditions such as floods or droughts, the IRS notes. Holding livestock for at least 24 months before selling provides better capital gains tax results, according to Successful Farming.

7. Use a tax accountant — Tax preparation makes your accounting more accurate, but a qualified tax preparer who understands the farming tax codes will help avoid mistakes and offer professional consultation. Having good record-keeping reduces costs for accountants, reports the Maine Organic Farmers and Gardeners Association.

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Farmers receive better tax benefits with good strategies throughout the year, but they often still need tips when filing their returns to reduce taxes. Planning and preparation make the upcoming Tax Day less stressful.
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2017-06-21
Tuesday, 21 Feb 2017 11:06 AM
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