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Serving: United States

3 tax provisions you shouldn’t overlook

Joe Raedle/Getty Images Ranchers look on from the bleachers during a livestock auction
COW TAX ADVANTAGE: Dairy cows sold are not subject to self-employment tax and, if held for at least 24 months, can be taxed at long-term capital gain rates, which are lower than ordinary income rates.
Tax Tips: Working with an ag tax specialist will ensure you don’t overlook money saving provisions.

The 2017 Tax Cuts and Jobs Act brought about sweeping changes to the U.S. tax code. Many of these changes went into effect in the 2018 tax year, which you filed last spring.

While these significant changes made tax preparation a heavy lift, tax preparers know to expect changes to the tax code every year.

Agricultural tax law has many specific provisions that can benefit those in the industry, but these provisions may be overlooked if a tax preparer isn’t well-versed in the business of agriculture.

Here are three tax provisions that you shouldn’t overlook:

Reporting dairy cow sales

Dairy cows sold are not subject to self-employment tax and, if held for at least 24 months, can be taxed at long-term capital gain rates, which are lower than ordinary income rates.

If the tax preparer reported this as ordinary income on schedule F, it may cause the farmer to pay a higher tax rate on certain cow sales.

Reporting crop insurance proceeds

Most farmers are cash-basis taxpayers; they usually report income the year they get paid for crops or livestock. However, there is an exception to this rule regarding crop insurance proceeds.

The taxpayer can elect to defer recognizing the crop insurance proceeds as gross income by one year if the proceeds were received before the year when crops typically would be sold.

Here is an example: Your 2019 apple crop would normally have been sold in 2020, but a portion of those apples were destroyed by frost in 2019. The crop insurance check is received in 2019. In this case, it may be to the taxpayer’s advantage to defer the income until 2020 or to recognize it in 2019.

Many states, including New York, offer a variety of tax credits to ag businesses.

Some examples include the farmers school tax credit, the investment tax credit as well as several fuel tax credits.

Many ag operations meet the eligibility requirements for these credits, but the correct forms must be filed in order to receive the credit. Ag tax specialists may be able to suggest a small change to the operation that could qualify for a tax credit. Examples include choosing certain types of equipment and depreciation methods or receiving a detailed invoice from fuel suppliers.

If you are not taking full advantage of the beneficial provisions the tax code provides, you may be overpaying your tax bill.

A continuous, year-round relationship with your tax preparer can help you with questions you might have along with providing advice on business decisions and assisting in tax planning.

Cerio is a tax specialist for Farm Credit East. 

Source: Farm Credit East, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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