Tax Tips for Farmers

Tax Tips for Farmers

• For classification purposes, the IRS considers more than just ground tillers as farmers. The IRS regards orchards, livestock, dairy, poultry, vineyards, ranches, ranges, and even fish as farming.  For tax purposes, if the activity is owned by a sole proprietor, farming is considered a small business. However, these activities are reported on Schedule F rather than Schedule C of Form 1040.
• The basic rules governing all small businesses apply with some interesting exceptions.
• Here are the basic rules:
• Net profit is subject to self-employment tax, which is calculated on Schedule SE.
• You may deduct all “ordinary and necessary” business expenses.
• Workers you hire are subject to payroll tax withholding and matching unless they pass the test to categorize them as independent contractors.
• Net operating losses can be carried back or forward.
• You may deduct self-employed health insurance on Line 29 of Form 1040.
• You may deduct retirement plan contributions to an IRA, SEP IRA, etc… as an adjustment to income on Form 1040.
• Cost of goods sold: If you purchase livestock for resale, you may take the deduction when you sell the beast (including transportation costs) not when you purchase it.
• The hobby loss rules apply – profit in three of last five years. For breeding, showing, training, and/or racing horses – two of the last seven years.
• There are some interesting tax treatment differences between small businesses and farming, and farmers are given some tax breaks not offered to other business owners.
• First of all, if a farmer enjoys increased income one year, he can elect income averaging by considering the last three years of low income in order to reduce the current year tax bill. This method will not change a prior year’s tax liability. Basically, the data from prior years is used to determine the current year tax. In the past, income averaging applied to everyone, whether you were a farmer, a self-employed business owner or a wage earner. But this concept was written out of the tax code in the 1986 tax reform--with the exception of farming.
• Secondly, rental income is generally not subject to self-employment tax. However, if you rent some of your land to a farmer and you materially participate in those farming activities – such as a share-cropper arrangement – this form of rental income subject to self-employment tax. If you are paid in crops, the value of those crops is included in income and becomes subject to self-employment tax.
• As you are likely aware, land is not depreciable. However, if you are a vineyard owner, you may allocate a certain percentage of your land as “appellation” and deduct amortization based on that value.
• Fuel used off-road for farming activities can be subject to federal excise tax refunds or credits. Use IRS Form 4136 to claim a credit and Form 8849 to request a refund. Visit your tax pro or peruse the instructions for these forms to ensure that you qualify.
• Some expenses considered “ordinary and necessary” include: clearing brush from an area you wish to farm, removing sentiment from drainage ditches, and expenses for endangered species recovery. You may deduct expenses for soil and water conservation as long as they do not exceed 25% of your income from farming.
• Crop insurance proceeds granted to a farmer resulting from crop damage must be included in gross income. You generally include them in the year you receive them.
• Some income can be declared in a subsequent year. For example, if you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone until the next year the reporting of the gain from selling the additional animals.
• And some income is not taxable. For example, income from certain cost-sharing conservation programs may not be taxable.
• For more information about farming, check out Farmers Tax Guide available on the IRS website.
  Courtesy: Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.

The saying “What you sow is what you reap” is an age-old, farmer’s adage replete with wisdom that is still very much relevant even in the information and internet age. 

In a salesman’s quest for wisdom, knowledge & of course lots of sales, here are some things we can humbly learn from farmers according to Carl Dy:
1. Farmers are visionaries – They have a clear vision of what their land will be after months of cultivating it. You will hear nothing but stories of what they did before, during and after a harvest. Similarly, a salesman in general should have a clear picture of where they want to be and what they want to have in the future.
2. Farmers know their Market – Before they plant, they have identified already where to sell their produce so it can be traded for goods or money. It is very important for a salesman to correctly know who and where to sell his products to.
3. Farmers set the groundwork – Before the first seed is planted, a farmer makes sure the soil is fertile, and the soil is ideal for the seed to grow. Product knowledge is the groundwork for a salesman. Before you make your 1st sales call, make sure you know your product by heart. As the famous adage goes “Eat, sleep and breathe with your product”
4. Farmers understand their crop – Farmers are the experts when it comes to their crops and well farming of course! They know when it bears fruits, what pests attacked it, how weather can affect its growth. A salesman should before anything else be an expert of his product. Knowing all the strengths and weaknesses of the product before he goes to market is tantamount to winning the deal already.
5. Farmers are focused – Once a farmer goes out into his field, it is just him and his crops. Salesmen should learn to take away time traps (long breaks or chats) or irrelevant disruptions like personal issues during work hours and instead focus on the task at hand. Success will follow easily if you invest heavily in time and effort.
6. Farmers are patient – They know that the sometimes tedious, daily watering, weeding and pruning is needed so that the crops will be ready when harvest time comes. Similarly, salesmen should learn to be patient and first take good care of their prospects. They should know when the time is right to close the deal.
7. Farmers are protective – They protect their crops from weeds, pests and diseases by means of pesticides, herbicides and other techniques known only to their industry. A salesman should know how to protect his clients from other predators (sales reps) by keeping them happy and nourishing the relationship continuously.
8. Farmers pray and have faith – Farmers pray to their Gods for a bountiful harvest. Similarly, it wouldn’t hurt for a salesman to pray to his own God for guidance, support and divine intervention.
9. Farmers know the right time to harvest – If a crop is harvested early, the crop is no good. Likewise, reaping the fruits when it’s overripe is a no brainer. A salesman should learn the right & appropriate time in closing the deal. He takes a ‘sweet, slow but sure’ route to success.
10. Farmers don’t linger too much after a yield – They move straight back to preparing the land for the next tilling and planting. Likewise, a salesman who closes a deal should start all over again with all his successful strategies on one hand and all of his vital learning’s on the other before setting his sights to another successful run.
Courtesy:  For consultations, Carl Dy - e-mail: dy.carl@ayalaland.com.ph or dycarl@gmail.com