Ranches for Sale: Navigating the Complex World of Farm Income Taxes

Farmers, like any other business owner, make money. So like any business owner, they are required to pay income taxes. Understanding the basic concepts behind federal income tax laws is crucial for farmers because the amount of taxes he can owe often affects the benefits he receives from his property.

Basic income tax knowledge is imperative

What expenses are deductible from farm income? How much will you owe in taxes if you sell some of your cattle? How will adding to your farm staff affect the amount of taxes you pay? As a potential purchaser of ranches for sale, you need to know the answers to these questions. Consulting with an accountant, a bookkeeper, and/or a ranch broker will equip you with the insight and understanding you need to appropriately evaluate the impacts of your income tax liability decisions.

That said, the IRS website offers some tips concerning farm and income expenses to help you maximize your purchase.

Crop insurance proceeds. Insurance payments from crop damage count as income. They should generally be reported the year they are received.

Deductible farm expenses. Farmers can deduct ordinary and necessary expenses as business expenses. An ordinary farming expense is one that is common and accepted in the farming business. A necessary expense is one that is appropriate for that business.

Employees and hired help. You can deduct reasonable wages you paid to your farm’s full and part-time workers. You must withhold Social Security, Medicare and income taxes from your employees’ wages.

Deductible expenses for farmers

Income tax is a progressive type of tax—the more you earn, the more you have to pay. For farmers, deductible expenses include advertising, feed, freight, bad debts, employee benefits, legal and professional fees, insurance, and depreciation, among many others. In addition, there are several miscellaneous expenses that can be deducted from farm income.

Knowledge is everything

When it comes to income taxes, knowledge is everything. Do your homework. Be willing to spend time and money to obtain the information that you need. Use state and county resources to your full advantage. Most of all, don’t be afraid to seek professional help.

Where to get the right professional help

Confused yet? Don’t worry, professional brokers like the ones at Mirr Ranch Group have the knowledge and experience to help you handle ranch for sale issues such as tax credits, conservation easements, farm production, and so much more.

(Source: Ten Things to Know about Farm Income and Deductions, IRS, Mar. 26, 2013)