IRS Tax Tip 2013-41 -
If you earn money managing or working on a farm, you are in the
farming business. Farms include plantations, ranches, ranges and
orchards. Farmers may raise livestock, poultry or fish, or grow fruits
or vegetables. Here are 10 things about farm income and expenses that
the IRS wants you to know.
1. Crop insurance proceeds. Insurance payments from crop damage count as income. They should generally be reported the year they are received.
2. Deductible farm expenses. Farmers can deduct
ordinary and necessary expenses as business expenses. An ordinary
farming expense is one that is common and accepted in the farming
business. A necessary expense is one that is appropriate for that
3. Employees and hired help. You can deduct
reasonable wages you paid to your farm’s full and part-time workers. You
must withhold Social Security, Medicare and income taxes from your
4. Items purchased for resale. If you purchased
livestock and other items for resale, you may be able to deduct their
cost in the year of the sale. This includes freight charges for
transporting livestock to your farm.
5. Repayment of loans. You can only deduct the
interest you paid on a loan if the loan proceeds are used for your
farming business. You cannot deduct interest on a loan used for personal
6. Weather-related sales. Bad weather may force you
to sell more livestock or poultry than you normally would. If so, you
may be able to postpone reporting a gain from the sale of the additional
7. Net operating losses. If deductible expenses are
more than income for the year, you may have a net operating loss. You
can carry that loss over to other years and deduct it. You may get a
refund of part or all of the income tax you paid for past years, or you
may be able to reduce your tax in future years.
8. Farm income averaging. You may be able to
average some or all of the current year’s farm income by spreading it
out over the past three years. This may lower your taxes if your farm
income is high in the current year and low in one or more of the past
three years. This method does not change your prior year tax. It only
uses the prior year information to figure your current year tax.
9. Fuel and road use. You may be able to claim a tax credit or refund of federal excise taxes on fuel used on your farm for farm work.
10. Farmers Tax Guide. More information about farm income and deductions is in