Ultimate Farm Tax Filing Guide for 2024

December 1, 2023

Navigating taxes can be a challenge for farmers and ranchers every calendar year. However, tackling them proactively could potentially lead to savings, prevention of audits by the Internal Revenue Service (IRS), and the chance to maximize your refund. It's especially crucial for first-time filers and those facing tax-related concerns in the following year.

At FarmRaise, we’re dedicated to the financial health of the nation’s producers. While this resource aims to guide tax filers through the process, it's essential to seek advice from a tax professional. This tax guide serves as a supportive tool but is not a replacement 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 in the FarmRaise community, 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 and stress.

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.

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 (not to worry - we’ll explain what Schedule F is later on). You can even assign your expenses to the different farm products you manage - for example, your corn, cattle, laying hens or bees.

More than 50 percent of the producers we surveyed say that they either don’t track their expenses or don’t track them item by item. With Tracks, you’ll be keeping your farm expenses accounted for separately so you can easily file your taxes, apply for that farm funding and keep your budget up-to-date. 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 also from your personal income taxes could be against tax laws.

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.

You cannot deduct the self-employment tax you pay as a farm business expense. However, you can deduct as an adjustment to income on Schedule 1 (Form 1040), line 15, one-half of your self-employment tax in figuring your adjusted gross income. For more information, see chapter 12 on the IRS website.

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 for a farm: “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 - when it's time to file your Schedule F, you can go for user-friendly IRS-approved tax software or team up with a tax professional authorized to e-file returns for you. This will make tax season a breeze! 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.

The due date for Schedule F complete forms is generally mid-January each year but it depends on how your business’s fiscal year is structure. See our Schedule F guide for more information about how to fill out your Schedule F form.

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 or 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 three 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 for farmers, check out this page on the IRS website or reach out to a farm accountant.

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 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.  

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

Maximizing Your Deductions: A Farmer's Guide

Filing taxes can be complex, but for farmers, it comes with a unique set of considerations and potential deductions that can impact your overall tax rate and influence your capital gains. To ensure you're getting the most out of your tax return and avoiding any surprises in terms of additional tax, consider these key deductions tailored for agricultural businesses.

1. Farm Expenses: Deductible farm expenses are a farmer's best friend during tax season. This includes costs for seeds, fertilizers, pesticides, and fuel used for farming operations. Keep detailed records using tools like FarmRaise Tracks to easily track and categorize these expenses.

2. Depreciation of Equipment: Farms heavily rely on equipment like tractors, plows, and harvesters. Take advantage of depreciation deductions on these assets, spreading the cost over several years. FarmRaise Tracks can help organize and track equipment expenses for accurate depreciation calculations, potentially reducing your overall tax rate.

3. Conservation Expenses: If you're implementing conservation practices, you may be eligible for deductions. Expenses related to soil and water conservation, as well as the cost of protecting endangered species, can be deducted.

4. Home Office Deduction: For farmers who manage administrative tasks from a home office, a portion of your home-related expenses may be deductible. This includes a percentage of your mortgage, utilities, and insurance.

5. Health Insurance Premiums: Farmers who are self-employed can deduct health insurance premiums for themselves, their spouses and dependents.

6. Repairs and Maintenance: Regular maintenance and repairs on your farm are deductible. From fixing fences to repairing barns, these expenses can add up, and FarmRaise Tracks can help ensure nothing is overlooked.

7. Crop and Livestock Insurance: Premiums paid for crop and livestock insurance are deductible. Keep detailed records of your insurance expenses throughout the year to make this deduction process smooth.

8. Education Expenses: Stay updated with industry advancements by attending workshops or courses. Deductible educational expenses can include registration fees, travel and accommodation.

9. Charitable Contributions: If you make charitable donations related to agriculture, such as providing surplus produce to local food banks, these contributions are generally deductible.

10. Fuel and Vehicle Expenses: Deduct fuel costs for farm-related vehicles, as well as expenses for repairs and maintenance. FarmRaise Tracks helps you track your mileage and other vehicle related expenses.

Managing the tax landscape as a farmer requires attention to detail and accurate record-keeping. With FarmRaise Tracks, you not only streamline your expense tracking but also set yourself up for a successful tax season by ensuring you don't miss out on any eligible deductions.

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.

Understanding your filing status is crucial to determining the best approach to filing your taxes. Different filing statuses, such as single, married filing jointly or head of household can impact the deductions you're eligible for and the tax rates you'll face.

Consider reviewing your records from last year to identify any missed deductions or areas where you can optimize your filing. This retrospective approach can provide valuable insights and potentially enhance your overall tax strategy.

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 percent 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 2023, 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 (2023), 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. It tracks equipment purchases and milage. That way, come tax season, you’ll have a better idea of what equipment deductions you can claim.

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. Compare farm recordkeeping tools and choose the one that best serves your operation. 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.

Other Agriculture Tax Resources

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. You can demo Tracks for free, too.

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