Many of the expenses incurred in running a farm are tax-deductible.
Anyone who operates a business can minimize their tax liability by finding IRS-approved deductions, and America's farmers are no different. Farm-based income and loss are reported on a 1099 Schedule F, and the IRS allows several deductions upon which farmers with a keen eye for tax law can capitalize. These laws are current as of the 2010 tax year.
Operating Expenses
Farmers may deduct 50 percent of the cost of feed, fertilizer and seed. Breeding fees associated with livestock husbandry are deductible, as are labor costs, whether paid with cash or in trade (such as room and board). Construction costs and upkeep on a home cannot be deducted on a Schedule F.
Interest Payments
Interest paid on loans provided to purchase equipment, supplies or land are deductible expenses.
Insurance
Farmers can deduct insurance premiums paid as a necessary part of operating the farm, including fire, storm, crop and other insurance for farm assets. Additional types of business insurance such as health insurance, workers' compensation payments and state unemployment insurance payments are also deductible.
Business Use of Home
If a farmer uses a portion of her home for the farming business, she can allocate part of the home expenses as a deduction. She must deduct only the portion of the expenses that are used for the business. For example, if she uses a 300-square foot room in a 1,000-square foot house for the farm office, she may deduct about 30 percent of the home expenses, such as mortgage interest, heat and electricity.
Resold Items
Farmers may deduct the cost of any items purchased and resold during the year, including the cost of poultry or livestock. The cost of transporting livestock to and from the farm is included in this deduction.
Section 179 Expenses
Instead of amortizing the cost of certain types of business equipment over a scheduled period, farmers may qualify to deduct the entire cost of equipment in the tax year in which it was purchased. In the 2010 tax year, this amount is capped at $250,000.
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