If you're an ag producer, here's how to prep for your tax appointment

From lights and gifts to numbers and forms: The holiday season’s come and gone, and now it’s tax season. So, it’s time to get ready for your tax appointment.

When you’re getting ready for your appointment, there are a lot of different ways you can prepare your books. Client record-keeping preferences include handwritten ledgers, notebooks, farm tax books, and software. Use whatever method works best for you.

In the past few years, however, accounting software could have helped a lot of people. FSA and other government programs have required many taxpayers to review their bookkeeping and make various comparisons to qualify for the program. People who had their bookkeeping within software were able to pull out that information easily. Those who had handwritten records had to work a lot harder. So, it might be time to consider learning a software program such as QuickBooks, Xero, or Quicken.

Whether you use a manual method or software, it’s best to have your income and expenses summarized before going to your tax preparer. That’ll save you some money. Bringing in a boot box isn’t recommended.

Summary of income by category

• Income from calves and steers: Keep that in a separate category from your cows and bulls. If you sold pairs, you’ll need to break out the price the calf would have sold for separately. Also, list the number of animals sold by category. Your accountant may need to know if you sold more than average, are in a drought disaster area, and if a cattle deferral is available.
• Breeding livestock: List what you purchased and what you raised.
• 1099s: Gather your 1099s from rent, custom hire, and ag program payments.
• Trade-ins: Did you trade anything in on any vehicle or equipment purchase? If you did, bring a copy of your sale agreement to your accountant. The rules changed a few years back, and the trade-in value is considered a sale of the old equipment. You can then take the sticker price of the purchased equipment to depreciate or write off.
• Remember: If you received a check on or before the end of the year, it’s taxable in the year it is available to you.

Bonus depreciation change for 2024 for farm buildings: You only get a 60% write-off in 2024. For 2023 bonus depreciation, you get 80%. You can not use Section 179 depreciation for farm buildings, so you can’t write it off 100%.

What purchases do you depreciate?

Equipment, vehicles, trailers, and livestock — whether you paid cash or financed by the end of the year — can be depreciated. It just needs to be ready and available for you to use (in other words, placed in service) on Dec. 31 of the tax year. If you ordered it but it wasn’t available, you can’t deduct it until it’s delivered and available for use.

If you purchase a farm or a ranch during the year, you can’t depreciate the land. But you can depreciate the improvements such as corrals, buildings, grain bins, pipelines, wells, fences, etc. You’ll need to break down the improvements from the purchase price. You can’t depreciate the home you live in on the ranch. But you can depreciate a tenant house.

You should always review your depreciation schedule annually and dispose of items you no longer have. It can help you remember items you sold during the year you forgot about. Also, it helps keep the depreciation schedule up to date. Are there items that were destroyed or put to the iron pile? Do you have any purchased animals that died?

If I depreciate it out in the year of purchase, do I need to keep a depreciation schedule? The answer is yes. You need to keep a depreciation schedule for all items that you depreciate. If you sell the item, you can then remove it from the depreciation schedule. Even if you depreciate the asset over the life of the asset and the cost is used up, it stays on the depreciation schedule until you dispose of it.

Things to help reduce your tax liability:

• Farm and ranchers can use income averaging to determine their ordinary tax. It doesn’t help with self-employment tax, but it helps with the ordinary tax. Basically, Elected Farm income is used to average taxable income over a three-year period to calculate the ordinary tax. If the income averaged tax is higher than what it would have been if not averaged, you use the lower of the two outcomes.
• If you have self-employment income, you can contribute to a traditional IRA.
• If you have a high deductible health insurance plan, you can contribute to a Health Savings Account.
• Did you pay your kids for work they had done on the ranch, either with commodities or by cash? You can take a deduction, and if your kids are younger than 18, you don’t have to deduct any payroll taxes.

If you have questions about your taxes, let us know.