Farmers, does your tax preparer know these 10 important tax tips? No? Yes? They should….
If you are in the business of farming, there are a number of tax issues that you should consider before filing your federal tax return. The IRS has compiled a list of 10 things that farmers may want to know before filing their federal tax return.
- Crop Insurance Proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
- Sales Caused by Weather-Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to choose to postpone reporting the gain from selling the additional animals due to the weather until the next year.
- Farm Income Averaging You may be able to average all or some of your current year’s farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
- Deductible Farm Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
- Employeesand hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This would include full-time employees as well as part-time workers.
- Items Purchased for Resale You may be able to deduct the cost of livestock and other items purchased for resale in the year of sale. This cost includes freight charges for transporting the livestock to the farm.
- Net Operating Losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. If you have a net operating loss this year, you can carry it over to other years and deduct it. You may be able to get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
- Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
- Fuel and Road Use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
- Farmers Tax Guide More information about farm income and deductions can be found in IRS Publication 225, Farmer’s Tax Guide which is available at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
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Filed under: FILING YOUR TAX RETURN, IRS, IRS PRESENTS, PAYING YOUR TAX Tagged: | Accounting, Business, Expense, Farmers, Internal Revenue Service, IRS, Net operating loss, Stacie Clifford Kitts, Tax, United States