The Internal Revenue Service (IRS) has released 10 key points for farmers regarding federal income taxes/deductions.
According to an IRS e-newsletter, the IRS said taxpayers in the business of farming who cultivate, operate, or manage a farm for financial gain, either as owners or tenants, should adhere to the following key points:
•Crop insurance proceeds received as a result of crop damage must be included in income, generally in the year they are received;
•Regarding sales caused by weather-related conditions, if more livestock and poultry are sold than normal for one year, taxpayers may be able to postpone until next year the gain from selling additional animals;
•Farm income averaging may allow taxpayers to average all or a portion of the current year's farm income by allocating it to three prior years;
•With respect to deductible farm expenses, ordinary and necessary costs of operating a farm for profit are considered deductible business expenses;
•Taxpayers may deduct reasonable wages paid for employees or help hired to perform farming operations;
•In the year of the sale, a taxpayer may deduct the cost of items purchased for resale, including livestock and freight to transport it to the farm;
•If deductible expenses from operating a farm exceed other income for the year, the taxpayer may have a net operating loss, which can be carried over to later years and deducted;
•No deductions are allowed for the repayment of a loan if the loan proceeds are for personal expenses; and
•With respect to fuel/road use, taxpayers may claim a credit or refund for federal taxes on fuel used on a farm.
Additional information regarding farm income and deductions can be found in the Farmer's Tax Guide at www.irs.gov/pub/irs-pdf/p225.pdf.