• According to an IRS e-newsletter, the IRS said taxpayers in the business of farming who cultivate, operate, or manage a farm for financial gain, either as owners or tenants, should adhere to 10 key points.
The Internal Revenue Service (IRS) has released 10 key points for farmers regarding federal income taxes/deductions.
According to an IRS e-newsletter, the IRS said taxpayers in the business of farming who cultivate, operate, or manage a farm for financial gain, either as owners or tenants, should adhere to the following key points:
•Crop insurance proceeds received as a result of crop damage must be included in income, generally in the year they are received;
•Regarding sales caused by weather-related conditions, if more livestock and poultry are sold than normal for one year, taxpayers may be able to postpone until next year the gain from selling additional animals;
•Farm income averaging may allow taxpayers to average all or a portion of the current year's farm income by allocating it to three prior years;
•With respect to deductible farm expenses, ordinary and necessary costs of operating a farm for profit are considered deductible business expenses;
•Taxpayers may deduct reasonable wages paid for employees or help hired to perform farming operations;
•In the year of the sale, a taxpayer may deduct the cost of items purchased for resale, including livestock and freight to transport it to the farm;
•If deductible expenses from operating a farm exceed other income for the year, the taxpayer may have a net operating loss, which can be carried over to later years and deducted;
•No deductions are allowed for the repayment of a loan if the loan proceeds are for personal expenses; and
•With respect to fuel/road use, taxpayers may claim a credit or refund for federal taxes on fuel used on a farm.
Additional information regarding farm income and deductions can be found in the Farmer's Tax Guide at www.irs.gov/pub/irs-pdf/p225.pdf.