Agricultural Taxes: The Basics

Owning and operating a farm is hard work, but the government provides special tax benefits to those who go into the business of farming. As an agricultural producer, it’s critical that you stay organized throughout the year, so that you’re not scrambling come tax time.

If you are a farmer, you are no doubt familiar with the complicated tax landscape for farmers in this country. It is sometimes wise to use a tax accountant to help you get as many tax breaks as you are eligible for. Tax rules are complicated and different accountants may suggest various strategies to minimize your tax liability. Thus, it is important that you have a basic understanding of tax principles.

Investing in agriculture is a relatively low-risk way to diversify a portfolio; it provides tangible community benefits, but it can also offer investors unique tax advantages. As an investor, there are several different programs you may be eligible for depending on the type of crop and how the deal is structured. One example would be depreciation. Land does not wear out or get used up. It does not have a definite life. However, specialty crops depreciate because of the limitations in their production cycle. When a fruit tree first begins producing or when livestock first start breeding would be when depreciation begins. You could also allow a local rancher to harvest hay on acres you are not utilizing. It isn’t required that you do the work yourself to qualify for an exemption. In addition, there can be outbuildings or equipment that qualify for depreciation and deducted from gross income. Secondly, many successful moguls own homes in the country, with significant acreage around them. If you are one of these people and you are tired of paying big taxes on that extra land, you may want to consider using it for a small farm. Property tax and income tax relief can be obtained if you can prove that you farm as a business and not just for recreation. Agricultural tax breaks are not just for full-time farmers. In some cases, all you need is a piece of land that is not currently being used. It is becoming more common for farmers to put a portion of their land in conservation trusts through conservation easements. Conservation trusts seek to preserve natural areas that are delicate such as farm, ranch land, riparian areas or notable landmarks. Conservation easements offer a variety of different tax advantages. If a conservation easement is donated to a land trust and protects important or limited resources, it can qualify as a charitable tax deduction on the donor’s federal income tax return. Lastly, each state has different property tax exemptions based on the size of the property or the amount of production on the land. Every state offers advantageous property tax rates to encourage farmers to keep their land when faced with urban expansion.

Agricultural tax exemptions are quite significant to farmers especially when they reduce thousands of dollars from your property tax bill. It is recommended to visit with your accountant for the rules and eligibility requirements to help navigate through the complicated world of taxes. Keeping detailed records help keep things in order throughout the year and helps out the accountant.

As a licensed real estate Broker in Montana and Wyoming, I am bound by law preventing me from giving legal or tax advice. However, if you are filing your taxes as a farmer for the first time — or are a long-time farmer who’s still confused about how farms get taxed, Corder and Associates can work with you collectively and collaboratively in order to make a good sound agricultural decision. Corder and Associates work closely with numerous professionals in the tax industry to help our clients make the best economic choice for their particular situation. If you would like to visit directly, please call our office at 406-622-3224 or email corderland@gmail.com.

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