Farmers face distinct challenges when it comes to filing taxes, largely because the agricultural industry operates under its own set of tax rules. Unlike other sectors, farming requires careful attention to a host of unique factors, ranging from how income and costs are reported to managing depreciation of equipment and property, and making the most of available credits and deductions.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Are government program payments considered taxable income for farmers?
A: Yes. Government program payments, such as those from the United States Department of Agriculture (USDA), are generally included in income and reported on Schedule F, Profit or Loss From Farming. These payments are taxable in the year they are received.
Q: What is the tax treatment for crop insurance proceeds?
A: Crop insurance proceeds are generally included in income in the year received. However, if the farmer uses the cash method of accounting and can demonstrate that more than 50% of the income would have been reported in a subsequent year, they may elect to defer the income to the following tax year.
Q: Are fuel tax credits available to farmers?
A: Yes. Farmers may be eligible for a credit or refund of federal excise taxes on fuel used for farming purposes. This is claimed on Form 4136, Credit for Federal Tax Paid on Fuels.
Q: A farmer sells milk from their dairy cows. Is it reported on Schedule F or Schedule C, Profit or Loss from Business (Sole Proprietorship)?
A: The income could be reported on either. However, in most cases, Schedule F is applicable. If the farmer begins to sell more processed products or has a storefront, it may be considered income for Schedule C.
To learn more about preparing taxes for farmers, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.