The IRS has a number of beneficial tax provisions and deductions specific to farming.
Farming is a capital-intensive industry. Congress has long realized that farming is a unique industry, with substantial requirements for credit and liquidity, and heavy expenditures and significant cash flow issues due to the seasonal nature of agriculture. The tradition of the family-owned farm runs deep in much of the culture, and Congress has written a number of special considerations for farmers and owners of businesses in related industries into the tax code. Not every tax professional is familiar with the unique provisions related to farming; it pays to do your own research.
Section 179 Deductions
If you buy or lease a large piece of equipment, such as a truck, tractor, or other high-ticket farming equipment, you can deduct the entire purchase price against this year's income.
Federal Health Protection Program
As of 2009 you can exclude any payments received from the Federal Health Protection Program from your taxable income. This program subsidizes efforts at pest eradication from your fields and orchards.
Business Mileage
Keep track of your business-related mileage. For tax year 2010, you can deduct 50 cents per mile against your income for every mile driven for business purposes. This includes running around the farm, making runs for deliveries, picking up farm supplies, and anything necessary to conduct your business. Keep a notebook in your truck or trucks.
Prepaid Livestock Feed
If you prepaid for livestock feed next year, you may be able to deduct the entire purchase cost of the feed this year, provided there is a legitimate business reason for the pre-payment, and that you actually paid, as opposed to simply posting a deposit. Do not attempt this deduction if the pre-payment will significantly alter your taxable income, however.
Domestic Production Activities Deduction
If you receive income via a patronage dividend from a cooperative, you may be able to qualify for the Domestic Production Activities Deduction. For more information, see the instructions for IRS Form 8903
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