Tax write offs are the expenses you make within a year, which will be deducted from your net tax. You can benefit from these as a small farm owner because all the expenses made for the operation of the farm are counted as tax write offs, and that means you do not have to deduct a sizable amount of tax from a farm income that is often unstable and meager. So as a small farm owner, earning a good amount of money is not impossible. Here are some points you can consider when targeting tax write offs from a small farm.
Track your flow of income and expenses. It is important that you have a solid and clear record of your income and expenses. This is so that you can easily track your profit and the tax you are going to pay at the end of the year. Having a financial record also establishes your farm as a business outfit—a standing your farm should have in order to qualify for tax write offs.
File your receipts. The receipts you acquire within the year should be all filed and kept. These include the receipts for fertilizers, seeds, farming equipment, farm animals, feeds, and farm facilities. Your transportation can also qualify as a tax write off. The mileage you cover when you do farm-related travels can be converted into an amount pre-specified by the Internal Revenue Service (IRS). The maintenance facilities and office supplies and equipment are also counted as tax write offs. Just make sure that all the valid expenses have proper receipts, so the IRS can deduct them from your taxable income.
Deduct the cost of the property as an expense. This deduction is done under the provision of the Section 179 of the Internal Revenue Code. When you deduct the cost of the property, meaning anything that is used in the conduct of your farm business, the property will be subtracted from the taxable income in the year the property is used. According to the provision, the maximum deduction should be worth $125,000 for the tax years 2010 and 2011. Furthermore, the Section 179 deduction should not go over the cumulative income of the farm business.
Talk with your accountant. Your accountant will walk you through the processing of tax write offs. He will also advise you which of the expenses will reflect deductions in one tax year and which among them will cover a period of years. Therefore, it is important to keep an open communication with your accountant. Should there be any principle of the tax write offs you can’t seem to fully grasp, consider raising a question to your accountant.
Finally, report the tax write offs using the 1040 Schedule F form. You can use this to detail all your expenses. It will also be used to identify the taxes you are going to pay. Just an important reminder: Make sure to file your tax return on time to avoid having legal liabilities.