As another harvest season ends, many farm managers are shifting their focus from production practices to financial management. This is a good time to evaluate your operation’s financial position and prepare for year-end tax decisions. Knowing where your operation stands before Dec. 31 is essential.
For many producers, 2026 brought income from federal farm assistance programs designed to help offset the economic challenges facing agriculture. While those payments provided welcome support, they may also affect taxable income and cash flow.
In fact, some farms may find themselves reporting more taxable income than expected despite tight margins.
Recent tax law changes have also created new opportunities for farm businesses. The One Big Beautiful Bill Act (OBBBA), passed in July 2025, made several tax provisions permanent and expanded others. Working with your tax preparer now can help you evaluate strategies such as equipment purchases, prepaid expenses and marketing decisions. The following are some of the key tax provisions farm managers should consider before closing the books on 2026.
Year-end tax planning
For farms with higher taxable income due to strong yields, grain sales or government assistance payments, Section 179 depreciation may help reduce tax liability through planned equipment purchases. However, purchasing equipment solely to avoid taxes rarely improves long-term profitability. For 2026, the maximum Section 179 deduction increased to $2.56 million, subject to income and investment limitations. In addition, OBBBA restored 100 percent bonus depreciation and made it permanent for qualifying assets placed in service after Jan. 19, 2025.
The OBBBA also made the Qualified Business Income Deduction (QBID) permanent. Farmers operating as sole proprietors or through pass-through entities may continue claiming a deduction of up to 20 percent of qualified business income, including the special deduction available through agricultural cooperatives.
In September, the IRS extended tax relief for farmers and ranchers forced to sell draft, dairy or breeding livestock due to severe or extreme drought between Sept. 1, 2025, and Aug. 31. This extends the replacement period from two years to four years, allowing producers additional time to defer capital gains. Sales of other livestock raised for slaughter and sales of poultry do not qualify.
Asset and transition planning
Under IRC Section 1062, eligible sellers of qualifying U.S. farmland can elect to spread federal capital gains tax liability over four equal annual installments rather than paying the full tax bill in a single year. To qualify, the land must have been farmed or leased to a qualified farmer for at least 10 years before the sale and remain in agricultural use for 10 years after the transfer. While this provision does not reduce the total tax owed, it may improve cash flow and provide additional tax planning flexibility for farmland sales.
The OBBBA also permanently increased the estate and gift tax exemption to $15 million per person starting in 2026, with annual adjustments for inflation. This change is especially significant for farm families developing long-term transition and estate plans. In 2026, individuals may also give up to $19,000 annually per recipient without using any portion of their lifetime exemption.
Record keeping and compliance
Farmers commonly use Forms 1099-NEC and 1099-MISC to report payments made during business, such as custom work, contract labor or cash rent payments. Beginning in 2026, the reporting threshold increased from $600 to $2,000. A reminder that copies of these forms must be provided to payees by Jan. 31, 2027.
Assistance
Each of these tax provisions is complex, and every farm operation is different. Consult with your tax professional to determine how these provisions apply to your specific situation. For additional information, review the 2026 Farmers Tax Guide at irs.gov/forms-pubs/about-publication-225.
Producers looking for more detailed information on these and other tax issues should consider attending our Farm Office Live webinar from 10 a.m. to noon on Nov. 13. This webinar is free. To register for this webinar, go to farmoffice.osu.edu/farmofficelive. This webinar will also be recorded for viewing after Nov. 13.
Final thoughts. As the end of the year approaches, now is a good time to review your records, estimate taxable income and meet with your tax professional. The combination of government assistance payments, changing tax rules and uncertain commodity markets makes proactive planning more important than ever.
Tax management is only one piece of the profitability puzzle, but understanding these provisions can help you make more informed decisions for your operation and family. The best tax strategy is one that supports both the financial health and long-term goals of the farm. Taking time now to review your numbers before year-end can help position your operation for a stronger 2027.
