As a farmer or rancher, managing your farm income and preparing for the end of the tax year can be challenging, especially when it comes to navigating farm tax laws. Understanding how to maximize your farm tax write-offs is key to reducing your tax liability. FarmRaise Tracks simplifies recordkeeping, helping you track your farm-related expenses, property taxes, and conservation expenditures, which will help during tax planning for your federal income tax return.
Here’s how you can use FarmRaise Tracks to maximize your tax breaks and reduce your tax bill.
1. Track All Farm-Related Expenses
Why it matters: Keeping a detailed record of deductible farm expenses is essential for lowering your taxable income. The Internal Revenue Service (IRS) allows small business owners like farmers and ranchers to deduct necessary business expenses, such as seed, feed, and other costs related to your farming activities.
How FarmRaise Tracks helps: Use the app to categorize and record every purchase made for your farm, from farm equipment to repairs and real estate. This thorough recordkeeping helps ensure you capture every possible agricultural tax deduction.
Examples of Deductible Farm Expenses:
Fertilizer and pesticides
Seeds and plants
Livestock feed and vet costs
Equipment repairs and maintenance
Property taxes and utilities
Hired labor and contract services
2. Depreciation Deductions for Equipment and Farm Buildings
Why it matters: Large purchases, such as farm equipment or farm buildings, can be deducted over time using depreciation deductions. This reduces your taxable income over the useful life of the equipment, easing your tax bill in future years.
How FarmRaise Tracks helps: Track each purchase of farm equipment or improvements on farm buildings. This will help you and your CPA ensure accurate depreciation deductions, minimizing your tax liability.
3. Claim Section 179 Deduction
Why it matters: Section 179 allows small business owners to deduct the full purchase price of qualifying farm equipment in the current year it’s put into service, rather than depreciating it over several tax years.
How FarmRaise Tracks helps: By tracking your farm equipment purchases, you can determine whether you can take full advantage of Section 179 deductions for the current tax year.
4. Home Office Deduction (if applicable)
Why it matters: If you use a portion of your home exclusively for farming activities, you can claim a business tax deduction for related expenditures, lowering your taxable income.
How FarmRaise Tracks helps: Track your home office expenses, such as a portion of your mortgage, utilities, and real estate taxes, and share these with your CPA for inclusion on your tax return.
5. Vehicle Expenses
Why it matters: If you use a vehicle for farm-related activities, you can deduct either the actual business expenses for vehicle use or take the standard mileage deduction for tax purposes.
How FarmRaise Tracks helps: Use the app to log farm-related trips and vehicle costs, making it easy to calculate your deduction for the tax year.
6. Deduct Interest on Farm Loans
Why it matters: The interest on loans for farm equipment, real estate, or other farm income-generating purchases can be deducted, lowering your overall taxable income.
How FarmRaise Tracks helps: Track loan interest payments and share them with your tax expert to ensure you maximize your deductions.
7. Employee and Contract Labor Expenses
Why it matters: Payments made to farm employees and contractors are deductible farm expenses. Tracking these business expenses is key to accurately reflecting your gross income and reducing your tax liability.
How FarmRaise Tracks helps: Record labor costs and employee benefits, ensuring they are included on your tax return as allowable deductions.
8. Insurance Premiums
Why it matters: Insurance premiums related to your farming business, such as liability or crop insurance, are deductible.
How FarmRaise Tracks helps: Log your insurance payments in the app for accurate deductions at the end of the tax year.
9. Utilize Tax Credits and Incentives
Why it matters: Tax credits, such as those for water conservation or conservation expenses, can reduce your overall tax bill and may even lead to tax savings.
How FarmRaise Tracks helps: Record qualifying business expenditures and consult a CPA to check which federal income tax credits and incentives apply to your farming operation.
10. Work with a CPA or Tax Professional
Why it matters: As a small business owner, a CPA or agricultural tax expert can help you navigate complex tax laws, apply the right deductions, and minimize your tax liability.
How FarmRaise Tracks helps: The organized records provided by FarmRaise Tracks simplify tax filing for your accountant, reducing errors and helping you take advantage of every possible deduction and exemption.
Final Tips for Maximizing Tax Write-Offs with FarmRaise Tracks
Keep thorough records: The more detailed your recordkeeping is throughout the year, the easier it will be to minimize your taxable income and reduce your tax bill during tax season.
Leverage your CPA: A tax guide or tax expert can help you navigate IRS tax forms, depreciation schedules, and any tax credits that apply to your operation.
Plan ahead for tax savings: Proactively work with your accountant on tax planning strategies to take full advantage of tax breaks related to conservation expenses, depreciation, and more.
By leveraging the power of FarmRaise Tracks and following the advice of your tax professional, you can better manage your farm tax obligations and maximize your tax savings each tax year.