Costs are up and prices are down. That’s the perpetual story of most things agriculture. Even so, farmers keep on farming. And they continue to put America, and the world, on their shoulders. So, it’s only fitting that they benefit from overlooked farm deductions. After all, farmers work hard to provide, so it’s important to have an accurate tax bill, including every available tax deduction.
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Tax Code 180
The Tax Code 180 is multifaceted. However, it is a section that allows landowners to treat the quality of the soil. This soil amendment is completed at the time of purchase, and therefore, it becomes a deductible cost. W recently went in depth on this topic on an episode of The American Landowner podcast.
According to the University of Nebraska — Lincoln, this deduction should be filed the same year as the land purchase. That said, an amended tax return for a past tax year can be completed to benefit from this tax code.
According to UNL, it says the code states, “In general: a taxpayer engaged in the business of farming may elect to treat expenses, which are usually not chargeable to capital account expenditures, as chargeable to the capital account, which is paid or incurred during the taxable year. Qualified purchases or acquisitions include fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used in farming, or for the application of such materials to such land. The expenditures so treated shall be allowed as a deduction.”
Bulls come with their own expenses.
That said, there are certain things that might disqualify the farm tax deductions. For example, if the owner previously rented the property, the deduction likely won’t count.
Also, there are limits to the deduction. “Landowners may realize some tax savings by deducting the value of pre-existing soil fertility,” said Shannon Sand with UNL. “The value of the residual fertility load and the applicable landowner tax rate determine the savings. The landowner must determine deductions with support from their CPA or tax advisor.”
Depreciation of Farm Assets Such as Equipment, Buildings, and Land Improvements
Depreciation is the recuperation of the cost of an item (over a period) that’s used in one’s profession. This is complicated, though, because different things depreciate at different rates.
“Long-term assets that are used over multiple years, such as tractors, trucks, or combine harvesters, have a resale value that will be less than what was paid for that asset initially,” stated the Mississippi State University Extension office. “The difference between the initial value of the asset and the current value stems from various factors, including wear-and-tear, reduced expected life, and so on. The difference – or the reduction in asset value – is called depreciation. Depreciation is an accounting procedure in which the anticipated decline over time in an asset value is reflected.”
Various things used on a farm can be depreciated. These are material objects that can help lower tax liability over time. Examples include building structures, farm machinery, land improvements, and more.
According to MSU, other long-term asset examples include: cattle (dairy or breeding), calculators, copiers, communication equipment, computer equipment, drainage facilities, fences, goats and sheep), grain bins, hogs, horses, horticulture structures, nonresidential real property, office furniture, paved lots, residential rental property, tractors, trucks, water wells, and more.
According to most experts, farm buildings (barns, greenhouses, storage, etc.) are usually depreciated. This is done over the course of 20 years. Additionally, land improvements are in another depreciation class. These tend to be depreciated over 15 years.
All said, deductions usually fall under straight-line, 150% declining balance, or 200% declining balance.
Overlooked Farm Deductions Related to Soil Conservation, Erosion Control, and Land Management
Controlling erosion is a large task for landowners. It’s especially expensive to accomplish. Ensuring the soil remains in good condition takes resources, and landowners might be able to recoup some of these.
As with most operations, there are expenses related to soil conservation, erosion control, and overall land management. Certain expenditures from soil and water conservation (with the purpose of preventing erosion) can be deducted.
For example, conditioning, contour furrowing, grading, leveling, terracing, and more, are examples of tax deductible expenses.
Costs Associated with Livestock Care, Including Feed, Veterinary Services, and Breeding Expenses
There are certain costs associated with livestock care. This includes the costs of feed, breeding expenses, veterinary services, and more. As UNL notes, the unit cost of production for a cow-calf enterprise isn’t low. Fortunately, some of the costs can be considered business expenses.
Cow-calf operations come with a lot of expenses. Make sure you document these.
According to Warren Rusche, an assistant professor with the South Dakota State University Extension, it’s important to benefit tax-wise from cattle costs. Rusche says that variable costs include “Pasture production, hay production, purchased hay per cow, bull (pasture and hay), supplemental feed, salt and mineral, vet and med, reproduction (AI), labor, interest, marketing, land rent and any other miscellaneous expenses.” Likewise, fixed costs include “Livestock facilities, equipment upkeep, pasture, hay machinery/equipment, purchased breeding stock, purchased heifers (not bred), and miscellaneous overhead. Fixed costs in general will be HIGHLY variable between operations.”
Crop Production Expenses, Including Seed, Fertilizer, Pesticides, and Irrigation
Similarly, crop production expenses — including seed, fertilizer, pesticides, and irrigation — also might be deducted. Benefit from these categories with good record keeping. Don’t let these tax-deductible items go overlooked on your tax filing documents.
Overlooked Farm Deductions for Fuel, Utilities, and Transportation Costs for Farm Operations
Lastly, don’t forget about fuel, utilities, and transportation costs with farming operations. These categories also include expenses that oftentimes are considered tax deductible. Therefore, keeping track of these things can benefit farmers come tax time.
Conclusion: Importance of Complying with IRS Regulations and Guidelines When Claiming Deductions
The IRS is no joke, and it’s important to comply with all IRS regulations and guidelines. That’s also true for claiming deductions. It’s important to be completely understanding of the tax code. Educate yourself with quality content from tax experts.
For example, for more related content, and expert advice from a tax professional, consult with Paul Neiffer and the Farm CPA Report. Check out his podcast for excellent audio content.
Finally, consult a tax professional who can ensure you and your farming operations follow all applicable rules and regulations. They grasp the importance of understanding and maximizing overlooked farm tax deductions. Rest assured, they’ll help you find overlooked tax deductions.
Of course, always keep great records of your tax-deductible line items. Proof of purchase and expenditure is needed to take the deduction. Maintaining good records is part of the overall process when keeping track of farm tax deductions, whether they qualify as “overlooked,” or not.