These deductions often go unclaimed by farmers. Keep them in mind to maximize your write-offs this year.
This resource is provided for general informational purposes only. It does not constitute professional tax, legal, or accounting advice. The information may not apply to your specific situation. Please consult with a qualified tax professional regarding your individual circumstances before making any tax-related decisions.
Farmers are entitled to a slew of tax benefits, but the rules can sometimes be complicated, causing them to leave valuable write-offs on the table. Here are eight important tax deductions farmers often don’t know they qualify for.
1. Farmland purchased within the last year
If you purchase farmland at a premium and a certified agronomist finds that it contains a higher-than-baseline amount of fertilizer, you might be able to deduct the value of that excess fertilizer using the Section 180 deduction.
This deduction involves some amount of work and expense: you’ll need the help of an accountant and an agronomist to perform the grid sampling and fertility calculations properly. Depending on the amount of fertilizer found, however, a Section 180 deduction can also range into the $1,000s per acre.
If you think your land might be eligible, reach out to your tax professional, an agronomist at your local ag extension, or a company specializing in soil fertility analysis for agriculture.
2. Vehicles, equipment and other big capital expenses
You might already know about claiming depreciation for farm vehicles and equipment, but did you know that Section 179 lets you write off up to $1,250,000 in tangible property expenses in the year that they’re purchased?
For farmers, this can include:
Vehicles like cars, trucks and tractors
Machinery and equipment like milk tanks, grain bins, gasoline storage tanks and pumps, automatic feeders, barn cleaners, combines and threshers
Single-use agricultural or horticultural structures like chicken coops, hog barns and greenhouses
Breeding livestock including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals
You can file for the Section 179 deduction using Part 1 of Form 4562, but make sure to speak with your accountant or tax professional before doing so.
3. Prepaid fertilizer, lime, seed, feed and other farm supplies
You might already know that supplies like seed, feed, fertilizer and lime are deductible. But did you know that if you use the cash method of accounting to report your income, you can also deduct a portion of the supplies you purchase ahead of time for use in future years? The maximum deduction you can take for prepaid supplies is 50% of the total value of the other deductible farm expenses you claim that year using Schedule F.
4. That contractor you hired to repair fencing
Labor, supplies, tools and contractor fees related to any repairs and maintenance carried out on the farm are generally deductible, and can include activities like:
Repainting a farm building
Replacing a broken window
Replacing tiles on a roof
Mending a fence
Changing the oil in a farm vehicle
Remember that if an expense ‘improves’ or ‘restores’ farm property in some way it can’t be deducted and will have to be capitalized and depreciated instead.
5. Bush hogs and chainsaws
If you’re a farmer and you aren’t sure whether an expense needs to be depreciated, Section 1.263(a)-1 allows you to deduct them anyway using what’s called a “safe harbor” election. This might apply to an expense you aren’t sure qualifies as a repair or an improvement, or to small equipment like chainsaws, bush hogs and tools.
The safe harbor amount for farmers without an applicable financial statement (i.e. they don’t produce financial statements for the SEC, have their financial statements audited by an independent CPA, or produce an income statement for a federal or state government or agency) is $2,500, which means that they can deduct an expense as long as the amount paid does not exceed $2,500 per invoice or item. The amount for farmers with an applicable financial statement is $5,000 per invoice or item.
6. Marketing and sales expenses
Many of the expenses involved in bringing your product to market are deductible, including marketing materials like flyers and brochures, print and online advertising, retail packaging design and branding, transportation, and booth fees at farmer’s markets.
7. Farm office expenses and overhead
Office supplies, telephone, internet, cell phone, and other utilities and services are generally deductible–however, if you use them for both business and personal use, only the business portion is deductible.
Fees related to running your business like business startup fees, business insurance, accountant fees for services like tax preparation, real estate and property taxes, veterinary and breeding fees, consultants, lawyers, accountants and agronomists are also generally deductible.
8. Ambrook
Accounting, bookkeeping, and other management-related software as a service (SaaS) tools like Ambrook that charge a subscription fee can be treated as a rent expense and deducted, as long as you use them for business purposes.
If you purchased the software outright and it has a useful life of more than 12 months, you’ll have to capitalize and depreciate it. You’ll also have to depreciate it if it’s bundled with hardware, but remember that computer hardware purchases can be written off using Section 179.
Never Miss Another Deduction Again With Ambrook
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