Agriculture Industry

We help agriculture businesses take advantage of tax opportunities that are specific to the industry. Our firm’s agribusiness experiences include grain, livestock, tiling, and forestry, along with the use of land conservation easements.

The application of federal income taxes to agricultural operations is unique in many ways.  Most farming operations use the cash basis method basis of accounting to their advantage. Under this accounting method, taxable income only occurs upon the receipt of funds, and a taxable deduction does not occur until the expense is paid. This gives a farmer significant control over their taxable income by providing the ability to control the timing of their taxable income (e.g. when to sell grain and when to pay the expense). 

With agriculture being very capital intensive, a farmer may receive large deductions for depreciation expense.  Farmers should consider the following tax planning opportunities:

SECTION 179 DEDUCTION

Farmers may fully deduct the costs of qualified property placed in service during the tax year rather than capitalizing the asset and depreciating it in future tax years. Within certain limitations, qualifying property for Section 179 includes:

  1. Machinery & equipment 

  2. Single-purpose agricultural structures

  3. Purchased breeding livestock

  4. Tile

Please note that the Section 179 deduction applies to both new and used farm equipment.

BONUS DEPRECIATION

Bonus depreciation is another method of accelerated depreciation. Currently, the bonus depreciation rate is 100% for qualified property placed in service in the tax year. This type of depreciation may be claimed on qualifying new and used property.

DEFERRED SALES

A farmer may defer income to the next tax year by selling under a deferred sales contract. 

INCOME AVERAGING

Farm income averaging is an election that is unique to farmers under the Internal Revenue Code.

PREPAID EXPENSES

Cash basis farmers may prepay the cost of farm supplies such as feed, seed, and fertilizer by purchasing them in the current year, even though the supplies will not be used until the following year.  Prepaying expenses permits farmers to shift income tax deductions from this year to the next. The amount of the allowable deduction for prepaid expenses may not exceed 50% of other deductible farm expenses (including depreciation), unless one of the following applies:

  1. The prepaid farm expense is more than 50% of other deductible farm expenses because of unusual circumstances, or

  2. The total prepaid expenses for the preceding three tax years are less than 50% of the total other deductible farm expenses. 

Note: Remember, to qualify as prepaid expenses, the supplies must be purchased and paid in full, not just a deposit paid toward the eventual purchase.