AGRICULTURAL TAXES -
FEDERAL & STATE TAX COMPLIANCE
If you are a land owner in Florida and have any agricultural operations on your property, it is important for you to understand how federal income tax rules impact your farming business. Unfortunately, some of the most complex rules apply to reporting profit and losses from a farming business. Decisions you make when running your business could end up having an impact on your tax liability, and you could end up paying more than your share of taxes if you don’t understand the benefits afforded to you as a farmer. You might also wonder, which accounting method should I use? How do I report and keep track of basis in crops, trees, or assets? What is required for record-keeping, and how long should I keep those records? You have questions, and here at Finnell Legal, we have answers.
Accounting methods can include cash, accrual, or a combination, and should be decided upon when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Choosing the method that’s best for you during your first year as a farmer is important because changing your accounting method after the first filing requires IRS approval.
It is necessary to keep proper business records, including income, expenses, depreciation, and employee information, in order to fulfill tax-reporting requirements. You may be asked to explain items that are reported if the IRS examines your tax returns - keeping files organized and complete will help to speed the process.
You should also determine a plan for managing your income tax liability over the long-term. For example, rather than focusing your efforts on reducing just the current year’s tax obligations, it is best to minimize tax liability over several years. This requires proper planning and assessment since there are some decisions that must be made prior to the close of the tax year. Estimation of receipts, expenses, and net profit are all items that should be done when managing income tax liability.
Running a farming business can be fulfilling and profitable, but it also can be complicated when it comes to tax liability. Make sure you are getting the most out of your business - contact us today if you are considering starting an agricultural operation, or if you currently own and run a farming business, to make sure you are meeting your tax obligations, and are taking advantage of the tax benefits provided to farmers.