Do you own and operate a farm? Or maybe just a vegetable garden?

Filing your taxes as a farmer can be tricky, but TaxGlobal is here to help. Here are some commonly asked questions about farming and taxes.

Does my business count as a farm for tax purposes?

Wondering if your vegetable garden, beehives, or pet chickens qualify you as a farm for tax purposes? While this can be determined case by case, the IRS states that to qualify as a farmer, you must “cultivate, operate, or manage a farm for profit, either as owner or tenant.”

So far so good, but we’re no closer to defining “farm,” right? Well, the IRS also states that a farm can include livestock, dairy, poultry, fish, and fruit, and that it can be operated as a plantation, ranch, range, orchard, grover, or truck farm. 

If you’re still not sure, try asking yourself the following questions, which the IRS uses to determine whether or not something qualifies as a farm:

1. Do you run your farm in a businesslike way?
2. Do you rely on the income you receive from farming?
3. Do you spend enough time and effort on farming to make a profit?
4. Do you sometimes change your farming methods to make a higher profit?

Even if you can’t answer yes to all of these, you may qualify if you can say yes to one or two. But in that case, the IRS may take some convincing. 

What if I’m a member of a jointly owned and operated farm?

A jointly owned and operated farm doesn’t qualify as a farm that you own and operate, at least, not for tax purposes. But if you and your spouse materially participate in a jointly owned and operated farm, AND you’re the only members, you can label that a joint venture on your tax return.

How do I file a cow on my tax return?

Filing a cow on your tax return may seem simple enough, but there are several factors at play, most notably:

• Whether you farm the cow for meat or dairy
• Whether the cow was born on site or bought from somewhere else

Why does this matter? A dairy cow can be considered a capital asset, since it adds value to a farm over time. As such, you can claim the cow’s cost by depreciating its value over 5 or 7 years. On the other hand, a meat cow counts as inventory, since you’re just going to sell it.

What if the cow died?

First off, we’re sorry. Unfortunately, if your cow was born on your farm but died and was never sold for meat, you can’t deduct anything because you didn’t buy the cow. 

If you did buy the cow, here’s what to do:

• For a dairy cow, file it as a capital asset: record the loss and note that the livestock was sold or disposed of for no purchase price
• For a meat cow, add the purchase price to your lost inventory

Do animals depreciate differently?

This sounds like a joke, but it isn’t. Cows actually depreciate at different tax rates than hogs, farm equipment, and other assets. To be on the safe side, check with the IRS for specifics.

Where do I find the asset depreciation part of my tax return?

You can enter your asset info on Form 4562, which is called Depreciation and Amortization. That flows into Schedule F, Profit or Loss from farming.

Are there any tax breaks for farmers?

If your farm’s yield changes every year (maybe you made a lot last year but business suffered this year), the IRS does allow you to average your income over a period of 3 years. This means you won’t get taxed a ton if you have a really good year in between two average or not so great years. You can fill that in on Schedule J.

Need help filing your farm taxes? Connect with a professional tax preparer on TaxGlobal.