Ahoy, land-lovers and cultivators of the earth! If you're a farmer, you're not just a master of the soil, but also a potential wizard of tax savings. Let's embark on a journey to understand how you can reduce that pesky tax bill and keep more of your hard-earned green (and we're not just talking about lettuce)!
Farms may be considered a business. You are considered a farm 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. Farmers under the Internal Revenue Code qualify for special tax benefits, yet not all agricultural producers meet the requirements.
In addition to what you are growing, producing, raising, selling or extracting, it is also necessary to examine the facts and circumstances of the applicable tax issue to fully determine whether each tax benefit applies to each situation. For example a business could be split into a farm (reported on Schedule F) and a non-farm (reported on Schedule C unless incorporated).
Take the example of a vineyard and a winery. The production of the grapes is a farm and reported on Schedule F. But lo and behold! When the grapes transform into something else, the sale of wine, juice or preserves would be considered non-farm and reported on Schedule C.
There are many special tax benefits allowed for those who meet the definition of a farmer. It may be advantageous to consider adding a farm as part of a larger tax strategy; however, just like any business, the hobby loss rules apply.
Someone not classified as a farmer may still be engaged in farming activities and have farm income. Some of the best benefits include deferred timing of recognizing farm income, not being required to maintain inventory and not being required to make quarterly estimated tax payments.
To learn about these and other tax breaks for farmers, click here to continue reading.