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Nine Things You May Not Know about Farm Income and Deductions
If you own and operate a farm or have land that
can be claimed as an agriculture deduction, there are certain
tax deductions that you may not be aware of.
If you own and operate a farm, there are many income tax deductions that you should consider before filing your federal income tax return. The Internal Revenue Service has composed a list of 10 things that farmers may want to know before filing their federal income tax return.
Here
Are The 9 Facts About Farm Income & Deductions:
Crop
Insurance Proceeds You must include in income
any crop insurance proceeds you receive as the result of
crop damage. You generally include them in the year you
receive them.
Sales
Caused by Weather-Related Conditions If
you sell more livestock, including poultry, than you normally
would in a year because of weather-related conditions, you
may be able to choose to postpone reporting the gain from
selling the additional animals due to the weather until
the next year.
Farm
Income Averaging You may
be able to average all or some of your current year's farm
income by allocating it to the three prior years. This may
lower your current year tax if your current year income
from farming is high, and your taxable income from one or
more of the three prior years was low. This method does
not change your prior year tax, it only uses the prior year
information to determine your current year tax.
Deductible
Farm Expenses The ordinary and necessary costs
of operating a farm for profit are deductible business expenses.
An ordinary expense is an expense that is common and accepted
in the farming business. A necessary expense is one that is
appropriate for the business.
Employees
and Hired Help You can deduct reasonable
wages paid for labor hired to perform your farming operations.
This would include full-time employees as well as part-time
workers.
Items
Purchased for Resale You may be able to deduct
the cost of livestock and other items purchased for resale
in the year of sale. This cost includes freight charges for
transporting the livestock to the farm.
Items
Purchased for Resale You may be able to deduct
the cost of livestock and other items purchased for resale
in the year of sale. This cost includes freight charges for
transporting the livestock to the farm.
Repayment
of Loans You cannot deduct the repayment of
a loan if the loan proceeds are used for personal expenses.
However, if you use the proceeds of the loan for your farming
business, you can deduct the interest that you pay on the
loan.
Fuel
and Road Use You may be eligible to claim
a credit or refund of federal excise taxes on fuel used on
a farm for farming purposes.
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