February 27, 2020

Tax Talks

Ag-specific tax provisions

By: Dario Arezzo


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 with the IRS in the spring of 2019. While the Act’s significant changes made tax preparation a heavy lift, tax preparers know to expect these continuous changes — especially ag tax specialists.

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 a few examples:

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 instead, 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 and report income in the year payment for crops or livestock is received. 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 in which the crops would typically be sold. (i.e. Your apple crop in 2019 would have normally 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.

Tax credits: Many states, New York in particular, 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. Farm Credit East tax specialists are trained on ag-specific rules and regulations and are well-versed in other tax related fields such as payroll, sales tax and estate planning.

We focus on achieving the best results for our customers because we want to be more than preparers. A continuous, year-round relationship with us helps to make sure we can answer questions, provide advice on business decisions and assist in tax planning to ensure that you are maximizing the long-term profitability and sustainability of your operation.

Farm Credit East offers a free review of your prior year’s tax returns to discuss circumstances surrounding your business and their potential tax effects. For more information, visit FarmCreditEast.com/taxprep or contact your local branch office.

Tags: consulting, estate planning, regulations, tax planning

Meet the Authors

Connect with and discover our Today’s Harvest blog authors and their broad range of financial and northeast agricultural expertise.