Being a small farm owner entitles you to certain tax benefits, but careful attention must be paid to keep accurate and detailed records. The IRS requires that you show a clear intent to make a profit. If you do not show a clear intent to profit from your small farm, the IRS may re-classify your farm as a hobby instead of a farm business. If your farm gets re-classified as a hobby you will not be able to enjoy the tax benefits of owning a small farm.
Equipment Purchases
Any equipment purchased for the running and maintenance of your small farm can be used as a tax deduction for your small farm. The IRS gives several different options for claiming and depreciating farm equipment. You can choose to use a seven-year MACRS, Modified Accelerated Cost Recovery System, depreciation method or use a special one-time 179 deduction in the year you purchased the equipment. Farm equipment can be anything from a tractor to a trailer. It is important to note the exact date that you purchase the equipment as this will be the date the IRS uses to start determining depreciation.
Tax Deductions for Livestock
If your small farm includes livestock, such as horses, cattle or goats, you can deduct the farm costs associated with these animals. Tax deductible fees include veterinarian fees, hay and grain, immunizations and registration fees. If you have livestock that dies during the tax year you can also claim a loss on the animal that died. If your farm purchases livestock for re-sale; the price you paid for the livestock is deducted from the price you sold the livestock at. Livestock that is kept for breeding purposes can also be depreciated in the same way that farm equipment is depreciated.
Crop Deductions
If your small farm grows crops, such as flowers, vegetables or even hay, many of the fees for growing your crops can be used as a tax deduction. Any fees for seeds, fertilizer or even fuel to harvest your crops should be listed as a farm business expense. If you pay crop insurance you can also list the insurance premium as a farm business expense. If you have crop losses this is also an allowable tax deduction. However, if your crop was insured and you received an insurance payment to cover the loss, different rules will apply.
Advertising, Travel and Miscellaneous Fees
Any marketing and advertising you pay to promote your small farm should be listed as a farm expense and deduction. Advertising can be anything from running a website to print and radio ads. Travel to industry shows or seminars to further your farm knowledge can also be used as a tax deduction. Professional fees, such as paying a tax attorney or membership in industry associations, is also tax deductible.
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