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Surviving Tax Day on the Farm

Joe KnowsEach year, like every other farmer, I face a slew of tax codes that are difficult to navigate and estimate. The ups and downs of the seasons make predicting taxes difficult, but this year I did a few things differently that made it a lot easier when tax time rolled around.

Hiring My Kids


Image via Flickr by WillowGardeners

My kids work hard on the farm, so paying them isn't a stretch. I want them to grow up with the family mentality that includes pitching in and not expecting to be paid for every chore, so the wages I pay can go toward their car insurance or into retirement or college funds. I can also deduct their farm clothing costs if it is something they need for their jobs.

In order to get a tax break and show reasonable expenses, I have to keep records of the work they've done. The IRS doesn't see a difference between me hiring neighborhood kids to help out or my own kids, so I choose to combine the values I'm teaching my own kids about hard work with the valuable breaks I can receive from the IRS when I invest money into my kids' futures. It's a win-win for us.

Really Understanding the Laws

It's important to understand the codes to avoid paying overly high taxes or facing an audit by the IRS for incorrect filing. If you are interested in learning about in-depth tax laws like I am, it might be worth it to take a few classes on the side to become a tax professional. The preparation will not only help you navigate complicated laws with your own farm, but help out friends and the surrounding community as well. 

Purchasing Equipment


Image via Flickr by basicbill

One of the important tax sections to really understand is the part on equipment deductions. Section 179 allows farms producing less than $400,000 gross annually to depreciate up to $108,000 of their equipment costs for that year. However, some farmers go overboard in purchasing unnecessary equipment to try to save on tax costs. Only buy equipment you really need and consider the most timely point to make that purchase during the year.

Considering All the Costs

This year I took careful notes on other farming costs I could deduct. Knowing how much I spent on electricity and insurance for the farm (not the house), for example, made it easy to deduct expenses from my profits. I have separate electric meters that help me know the usage difference between house and barns, but the IRS only requires an estimate of electricity used. I can also deduct my work phone, vehicle mileage and many other work-dedicated costs.

Understanding farming tax laws has made it easier to plan ahead and be in control of this year's expenses as much as possible. I won't be able to predict everything, but my tax knowledge has helped me make smarter farming decisions throughout the year that save me a lot of money in the long run.

5/4/2014 8:42:35 AM

Joe, in this day tax savvy knowledge is a precious commodity. For me it's a simple task at tax time. Since I'm single and have no deductions other than house mortgage interest and charitable contributions, I'm dangerously close to not being able to go long form. In the not too distant future, the mortgage interest will not be enough to heft me over the edge. My mileage trips for help with disaster organizations has been curtailed due to caring for family members enough to require me to be home but not enough to be a tax deduction. The IRS seems to know exactly where to put the cut off so that I don't quite get there. ***** Farms deal with huge dollar figures for operation and management costs, so I can see the wisdom to be educated in the tax laws. I hope that you will navigate the codes this year to only pay what you are required to pay. ***** Have a great tax day on the farm.