6 Tax Tips for Farmers

Farmers are probably the most underrated of US businessmen and their work is truly essential for our society. At the same time, they are rather heavily taxed and there’s a reluctance amongst the small farmers to spend additional funds on tax accountants.

The tips offered here are tax policies oriented towards farmers that are often overlooked and that farmers should be aware of especially if they do their tax reporting on their own and without professional assistance. Some of these are subject to changes in the law.

Crop insurance proceeds

Crop insurance is one of the most important payments you should make as a farm owner. It will insurance your crops in case something happens, mostly due to natural causes or weather. When this happens you’ll get a payment in order to cover your losses for the year. This one-time payment is seen as income by the IRS.

This may seem counterintuitive because it’s a payment you’re getting becomes of a loss in profits but it’s money being paid to you and therefore it’s taxable. It’s reported on your yearly taxes like any other income and the same rates apply.

Business expenses

Most of ordinary farm expenses can be deducted as a business expense and that means that your taxes will simply be lower for the amount you’ve already paid for a necessary business expense. It’s sometimes difficult for a farm to calculate what these expenses are because facilities and vehicles used for your personal life are often the same as the ones used for the farm.

This provides a farmer with two options, one is to keep careful track of all expenses and the other is to choose a deduction that’s standardized but smaller than it would otherwise be.

Employees

Employees, meaning their salaries are also a tax deductible expense. This include the seasonal and part time work because that’s a rather common demand when it comes to farms. The whole amount you pay for their services is also a business expense and it’s deductible, but that doesn’t count for additional expenses connected to the wages.

You’ll also need to pay the social security and Medicare of your employees and that’s based on their salary as well. These payments aren’t deductible from your taxes so they are an additional and necessary expense.

Weather related sales

Sometimes you’ll need to make an unplanned sale based on the weather and similar problems. That’s mostly related to drought but it can be about other problems as well. When this happens you’ll have extra income as well but in this case you don’t need to pay taxes on it right away.

This doesn’t mean that you won’t pay any taxes on these, but that they will be delayed until the things get in order and there’s no more weather issue and unexpected costs that are related to them. It’s mostly about the state declaring emergency related to natural disaster and then stopping it.

Loans

The interest on loans is also deductible. That means that you can lower your tax for the amount you pay in interest. The principle of the loan however, isn’t the deductible and you’ll need to pay that part without getting any help for it. This is only true when it comes to the loans used for farming purposes, personal loans can’t be tax deductible.

This goes for the full amount you’re paying on the interest on loans and those amount depend on your own credit score rating and it means that sometimes you’ll pay more but it will still be deductible.

Fuel

Fuel is one resource that the farms use and that’s subsidized by the government. That means that it’s purchased by the retailers that can sell it at a lower price and the government covers the difference in price. This fuel however, can only be used in farming machinery.

The government can make inspections and check for it meaning that there are fines when you’re caught using cheaper fuel for your personal vehicle. There are also deductions for deprecation on vehicle because that also occurs over time and the government helps.

Conclusion

There are many taxes and debts that the farmers need to pay for during their work year. The rules about it are often complicated and there are many exemptions. It’s important to know about them and to be aware of them even when you’re not paying a professional to help you with it.

Business expenses including loans and the expenses towards your employees are deductible. So are the costs that are made towards the vehicles and machinery you’re using. The income that you get from insurance is taxable regardless of what’s happening and what has caused you to get it.