Tax Reminders for Your Ag Operation, Part I

In the world of taxes, if the ag operation is owned by a sole proprietor (be it an orange grove, strawberry crop, fish farm, or cattle ranch), then that entity is considered a small business. Here are some important considerations to remember:
• Your ag operation can deduct all expenses that are considered “ordinary and necessary.”
• As a farmer, grower, or rancher, the net profit (calculated on schedule SE) will be subject to the self-employment tax.
• On Form 1040, retirement plan contributions(such as to an IRA) can be deducted as an adjustment to income, regardless of whether or not you qualify to itemize your deductions.
• Your net operating losses can be carried forward or backward.
• Any workers hired will be subject to payroll tax withholding and matching (except when they are independent contractors).
• When it comes to costs of goods sold, here’s a special consideration for livestock: You can deduct your costs on any livestock sold for resale after you sell the animal(s), not after your purchase it.
It’s also important to note that these agribusiness activities are reported on Schedule F of Form 1040 (not Schedule C). In my next column, I’ll dive deeper into a few differentiations between ag operations and traditional small businesses that mean a tax break for farmers.
BIO: Steven Crisman is the managing partner of Cross, Fernandez & Riley, LLP’s (C/F/R) Winter Haven office and leads their Agriculture Practice Group. He primarily serves the agriculture, manufacturing, warehousing, and distribution industries. He has specific experience with citrus growers, cattle ranchers, citrus and other horticultural nurseries, citrus harvesters and other support industries as well as watermelon, blueberry and other growers. In addition, Steve provides comprehensive tax and estate planning, attestation and business succession planning services.

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