If you are a farmer who has just started their own farm or have inherited it from your family, you may be wondering how taxes work with it all. The way that livestock and other aspects of your farm work with your taxes is quite different than other professions out there. Luckily, Mark Dicus & Company is here to straighten it all out for you as we work to help you understand how taxes on your farm and livestock all will work out.
What Qualifies as a Farm Business?
There are several different types of farms out there. Not all farms have 100 head of cattle grazing in the pastures. There are flower farms, vegetable & fruit farms, dairy farms, fish farms, ranches, ranges and so on. You get the picture. There is no one size fits all when it comes to farms. However, to decide whether your farm is a business or not, is an important thing to understand. If your farm is considered a business by the IRS’s standards, you are using your farm to “cultivate, operate or manage a farm for profit whether you are an owner or a tenant.” There are some guidelines that make it a little easier to figure out including:
– Operating your farm like a business
– Depending on the income generated from your farm for your livelihood
– Spending enough time farming that you intend to make it profitable
– Changing the way that you do farming operations in an attempt to make it more profitable
Do You Get a Tax Break for Livestock?
There are several different factors that come into play when it comes to livestock like cows. You have to think about what type of farmer you are and what you use your cows for. If you are a dairy farmer, it will look different than it would for a rancher. Whether or not your livestock was born onsite or purchased can also have an impact on your taxes as well. For instance, if you have a dairy cow, it is considered a capital asset because it will be providing income to the farmer throughout its life. If you are raising a cow to sell for meat it will be considered inventory for your farm.
How Do Farmers Pay Taxes when Yield Varies?
The biggest challenge that comes with farming is the fact that not every year is going to look the same for you. Some years, you will see large yields, while others will give you much smaller yields. To help balance this out, you will want to average your income over a 3-year period of time.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
If you are farmer who needs help sorting out the ins and outs of your taxes, you can turn to the professionals at Mark Dicus & Company to answer all of your questions for you. We can help you prepare your taxes so you can have a better understanding of your finances. Call us today!