CHAPTER 20 Deductions and Tax Credits for Farmers

  1. Farm Expenses
  2. Timber Gains
  3. Farm Losses
  4. Farm-Related Tax Credits
  5. Nondeductible Farm-Related Expenses

The U.S. Department of Agriculture reports that there were more than 2.07 million farms in the U.S. in 2015 (the last census for farms) Business owners engaged in farming activities may be entitled to special deductions not claimed by other businesses. These special deductions are in addition to the same types of deductions that other business owners enjoy. A farm includes stock, dairy, poultry, fish, fruit, and truck farms. Thus, it encompasses plantations, ranches, ranges, and orchards.

Farmers have been given these special rules in recognition of their unique business arrangements and to make their tax reporting easier. Some of these rules have been highlighted in other parts of this book. For example, farmers (other than farming syndicates) generally are allowed to use the cash method of accounting to report their income and expenses.

For further information about deducting farming expenses, see IRS Publication 225, Farmer's Tax Guide.

Farm Expenses

Ordinary and necessary business expenses related to farming generally are deductible. The timing of the deduction is determined by your method of accounting (cash or accrual). However, in addition to the types of expenses claimed by nonfarm businesses, farmers may be able to claim deductions for expenses unique to farming activities and in ways more favorable than general tax ...

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