Tax filing on the farm: Tips for 2015


SALEM, Ohio — Like it or not, income tax season is here. Again.

This year, tax professionals are pointing to number of changes to the tax code that farm filers should know.

David Miller, income tax reporting and planning enrollment agent for Delaware, Ohio-based agricultural law firm Wright & Moore, said some of those changes, as well as some perennial income tax filing issues, directly affect those filing farm taxes.


The first area that Miller suggested filers pay particular attention to this year is equipment repairs, and whether or not those repairs can be capitalized.

Related: Good recordkeeping benefits small farms

“For instance, one of my clients had a chopper redone — he replaced gears, parts, seals, and basically spent $5,000 to rebuild it. I’m going to pull up those repairs and look into depreciation to see if we can make it a capital expenditure subject to 179.”

In December, Congress passed a one-year extension of Section 179 of the Internal Revenue Code, allowing farmers and other small business owners to write off up to $500,000 on capital purchases, such as equipment, made in 2014.

Section 179 also allows filers to claim a 50 percent depreciation deduction each year on new equipment purchases.

Buildings and equipment

The 50 percent depreciation write-off relates to buildings as well as equipment, Miller said. He noted, however, that the 50 percent depreciation allowance applies only to new buildings, and buildings have to have been put into service in 2014.

“(The depreciation does not apply) if you bought some property that had standing buildings on it and you started using them, or if you bought a new building in 2014 but it’s still out sitting in a barnyard somewhere and not being used,” Miller said.


Another change, Miller said, has to do with what types of businesses farms must issue Form 1099s for work done on the farm.

Tax law changes in 2013, Miller explained, placed some incorporated businesses into this category. A significant area, he said, is livestock care.

“Before, if a vet was incorporated, you were exempt,” Miller said. “Now, even if the vet is incorporated, and you have more than $600 in vet bills, you have to 1099 them. And there are a lot of dairymen paying more than $600 for vet care.”


How healthcare in general, and the Affordable Health Care Law specifically, will affect current and future income tax filings has been perhaps the year’s most talked-about topic.

Miller said that while most farms he works with do not reach the 50-employee threshold in which a company is required to provide employee health care coverage, the changes do affect businesses that have opted for pre-tax employee reimbursements in lieu of providing employees’ health care coverage.

In short, such tax-free reimbursement options are, Miller said, “going away.”

“A company can’t specifically reimburse for health care coverage,” he said. “Before, that was untaxable. Now, they can increase wages, but (those wages) are then subject to FICA and Social Security.”


Another question tax filers often have, Miller said, is what can be written off in terms of supplies.

“We’re not talking about supplies like fuel, fertilizer or feed that will be used up within the year, but supplies that have a lifespan of more than a year,” Miller said. “A non-farm example would be jet fuel, which is bought two years at a time — but you can only write off the amount you use in a year.”

In most instances with farms, Miller said, even if certain supplies are prepaid, they are going to be used up within a given year.

“This isn’t anything new, but with grain prices up the past few years, farmers want to write more off,” Miller said. “We get questions like ‘what if I pay three years’ cash rent?’ We get that same kind question with prepaying insurance. You can prepay, but you can only write off what you used in the tax year.”

Record keeping

In any tax year, Miller stressed the importance of keeping up-to-date records, both business and personal.

“You can’t have enough details or good, complete records,” Miller said.

Being aware of the proper way to file that information with the IRS is equally important, Miller said.

“For instance, when you get that check at the sale barn, you have to separate out expenses — it is the gross amount minus expenses that you are paying,” he said.

Likewise, Miller said, separately recording types of livestock can be an often overlooked tax break for farmers.

“You should separate out cull animals,” Miller said. “The reason being that the cull animals, unlike breeding calves, are subject to capital gains and are taxed at a lower rate, which is an advantage to you.”

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