Ultimate Farm Tax Filing Guide for 2023

February 27, 2023

Taxes can be daunting for farmers and ranchers each fiscal year, but if you confront them head on you might be able to save money, avoid audits by the Internal Revenue Service (IRA) and maybe even maximize your refund. 

While this resource can serve as a guide to you, remember to always seek advice from a tax professional. This tax guide is not a substitute for professional financial advice.

Prepare for Taxes Before Tax Season

What’s the status of your farm budget and expenses? In a survey of over 200 farmers this fall, we discovered that 36 percent of farmers track their expenses using physical receipts, and 23 percent use their own Excel document to keep things organized. While this certainly gets the job done, these solutions aren’t exactly saving you time. 

If tracking physical receipts and hacking together your own excel sheet are reflective of your own budgeting behavior, consider leveling up your game by utilizing a designated tool to track your expenses well ahead of tax season. Staying ahead of expense tracking, budgeting and categorization work will help you avoid a tax season crunch where you're hustling to hand over shoeboxes of receipts to your accountant come tax time.

Don’t yet have a good system to keep these records? Sign up for Tracks which was designed for farmers like you!

Consider FarmRaise Tracks your ally this tax year. With our mobile application that works offline, you can easily snap photos of your farm receipts and categorize each expense according to the appropriate Schedule F category. You can even assign your expenses to the different farm products you manage - for example, your corn, cattle, laying hens or bees.

With Tracks, you’ll be keeping your farm expenses and budget up-to-date in the field. No more tax time crunch to get everything in order. 

Once you've sorted out how you'll keep your tax information in order, next it's time to learn about how agricultural taxes work.

Farm Property Tax

If you own your farmland, you’ll be dealing with some farm property tax. Property taxes can be challenging for farmers, especially when commodity prices fluctuate in contrast to land valuations. While your property tax burden will depend upon where you’re located, generally property taxes are calculated based on either the market value of your land or how much of your land is productive. 

Property tax deadlines range by state. Additionally, your state may have some property tax exemptions that you can apply for. For example, agricultural tax exemptions and special considerations exist in the state of Texas for productive farms. In Iowa, you can receive a “Beginning Farmer Tax Credit” if you lease your land (or other assets) to beginning farmers. Reach out to your state department of agriculture to learn more about special programs in your state. 

What About Federal Income Tax for Farmer Taxpayers?

When it comes to taxes, there are a lot of categories to juggle. Farm taxpayers should be very careful to make distinctions between personal income taxes, state taxes, and taxes for their business. If you deduct an expense from your business, deducting it from your income taxes could be against tax laws. For example, if you're filing as self-employed, you can't deduct the self-employment tax as an adjustment to income on your personal income tax form and also deduct it as a business expense.

If you are self-employed and set up a sole proprietor, you are required to file a Schedule F. What’s a Schedule F form? We’ll get to that in a second. But first, you need to know that if you file a Schedule F, you’ll need file your personal income taxes, too. (Think: the normal tax form that most taxpayers file aka Form 1040). The result of your Schedule F form will be reported on Form 1040, line 18, and Schedule SE (Form 1040), line 1a.

Agricultural Small Business Tax Forms: Schedule F

When you go to file your farm’s taxes, you’ll likely see form Schedule F. This form, titled “Profit or Loss from Farming,” allows you to report your farm’s net profit and loss for the year. The profit and loss reported on your Schedule F then gets transferred over to form 1040 to calculate your tax liability. Schedule F is also where you’ll report information that will allow you to claim tax deductions. 

You’ll need to file Schedule F if you fit the IRS definition: “You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards.”

Don’t worry - you can work with an accountant to fill out Schedule F. And, staying organized ahead of tax time with tools like FarmRaise Tracks will help you export your data in a Schedule F friendly format. It’s especially important to calculate properly because net farm income is subject to self-employment tax.

To fill out Schedule F, you’ll need to gather a variety of data from your farm, including:

  • A summary of business transactions, including gross income, expenses, deductions and credits
  • Supporting documents such as invoices and receipts for purchases, sales, payroll and other business transactions
  • Documentation of travel, transportation, entertainment and gift expenses, which are subject to their own recordkeeping requirements
  • Employment tax records
  • Excise tax records, for example on fuel purchases
  • Business asset and depreciation records
  • Financial statements as proof of payment
  • Previous tax returns

You might be doing business with entities that don’t send official receipts. Make sure that you get a copy / record of your transaction and the purpose of your transaction. This may require you to ask for an invoice, a proof of payment or other documentation showing that the payment was recorded and received. You’ll also want to keep track of mileage data for farm-related activities.

Your data can be in electronic or hard copy format. Either way, you need to ensure that your records are retained for as long as they might need to be accessed by the IRS for legal purposes. Generally, you’ll want to hold onto your records for at least 3 years from when your tax return was filed, but this can vary depending on the type of record. 

To see full details on what is required in terms of data and duration, reach out to a farm accountant or consult the IRS's extensive guide.

Are Farm Grants Taxable?

Are you receiving any farm grants? Make sure that you confirm with the funder whether the grant funding is taxable, and work closely with your accountant on how to report this income on your Schedule F. You may want to double-check your accountant’s methods of reporting this income with another expert, too, to be sure that you're maximizing your tax return.

If you’re a for-profit farm, it’s safe to assume that most farming grants you’ll receive will be taxable income. Again, check with the funder for specifics and be sure to work closely with your accountant on how to report this income on Schedule F.  

If you received an EQIP grant in the current tax year, read our guide to filing taxes with an EQIP grant.

Other Taxable Payments

Over the year, you may have received assistance from the federal government. These can also be subject to tax. If you received USDA funding, the USDA will issue a 1099 tax form for:

  • Farm Service Agency (FSA) and Natural Resource Conservation Service (NRSC) program payments (think: EQIP)
  • Crop disaster or assistance for distressed borrowers
  • Payments from Inflation Reduction Act (IRA)
  • Other financial assistance programs

Tips to Maximize Your Tax Return

The good news is that you’re able to deduct any normal and necessary farming expenses on your Schedule F to reduce your total profit and tax burden. These “normal and necessary” expenses can include the cost of inputs like feed, fertilizer and seeds, wages you pay to your employees, livestock purchases, farm loan interest payments, depreciation of equipment and utilities. We'll talk a bit more about this in a few paragraphs.

You can also deduct the cost of conservation practices that you implement as part of an NRCS-approved conservation plan. You’re able to deduct up to 25% of your gross income from farming this way. 

Finally, you can deduct other types of taxes on your Schedule F. These include real estate and personal property taxes for your farm business assets, federal unemployment taxes and taxes paid on highway motor vehicles, among others.

Can I Write Off My Tractor on My Farm Taxes?

Probably! You may be able to write off your tractor and other equipment as business expenses on your taxes as long as you use it for business purposes. How you acquired your equipment and how you use it for your business are key factors that will determine how you can write them off as business expenses.

  1. Section 179 deduction - Write off the entire cost of the tractor in the year it was purchased.
  2. Depreciation - If you purchased a new tractor in 2022, you may be able to deduct up to all of the cost of the tractor in the first year you used it. However, if you use your equipment for business purposes but didn’t buy it in this current year, you may still be able to maximize your deduction by counting its depreciation over a period of several years. But how do you determine and claim depreciation of your farm equipment? Check the IRS’s depreciation guide for details.

For tax purposes, it's important to keep track of when and where you use your equipment and any maintenance or repair costs you incurred. There aren’t many farm expense tracking tools out there, so that’s why FarmRaise built an expense tracking app especially for producers. That way, come tax season, you’ll have all of your expenses neatly filed in the same place.

Should I Hire a Tax Professional?

You can save money doing it yourself but if you want to hire a CPA, the USDA and the IRS can help. The IRS has a guide for how you can select a tax preparer and a directory of federal tax return preparers that you can consult. 

If you’d rather file taxes yourself, you can use tax software for free that can make your number crunching easier. Some software even pulls your numbers from the previous years which can be helpful to compare your year over year tax payments or tax returns.

Either way, it’s best to stay organized and prepare yourself to file taxes well in advance of the deadline. You’ll need to keep your own expense data in good shape and also work with USDA representatives, loan representatives, and others to secure appropriate tax forms well in advance of the deadline.

For general information about filing taxes as an agriculture producer, peruse the IRS’s extensive guide.

Ultimately, if you want to file taxes more easily and maximize your returns, keep record of your farm expenses as you accrue them. Use a low-budget expense tracker to capture every possible deduction and file ahead of deadlines. If you try the FarmRaise Tracks expense tracker, you'll also receive farm funding opportunities to your inbox and get assistance applying for your farm identification number and the USDA cost-share program.

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