If you own a farm or work for a farming business, you need to be aware of sections of the Internal Revenue Code related to farming income and expenses. A portion of the code speaks to the treatment of taxes.
This article is the fifth in a series on deductible business expenses associated with farming. The previous articles on deductible expenses covered Prepaid Farm Supplies, Prepaid Livestock Feed, Hired Labor, and Interest.
You can deduct as a farm-related business expense the real estate taxes and personal property taxes you pay on farm business assets such as animals, farm buildings, farm business equipment, and farmland. You can also deduct social security and Medicare taxes you pay in the amount withheld from the wages of your farm employees, as well as any federal unemployment taxes you pay.
Allocation of Taxes
The taxes associated with the portion of your farm used as your home, including home furnishings and the land surrounding your home not used for farming, are considered non-business taxes. You may be able to deduct these non-business taxes as itemized deductions on Form 1040 Schedule A.
To determine the non-business portion, allocate your taxes between the business and non-business assets based on the assessed value of the assets. You can obtain the assessed value from your tax statement, of if your tax statement does not show the assessed value, from your tax assessor.
State and Local Sales Taxes
You can deduct state and local sales tax assessed on non-depreciable farm business expense items as part of the cost of those items. In the case of assets used for your farm business, you should include imposed state and local sales tax as part of the depreciable cost of the assets. In addition, you should treat as part of your cost any tax imposed on the seller that the seller passes on to you.
State and Federal Income Taxes
You cannot deduct state and federal income taxes as farm business expenses. You can deduct state and local income taxes as itemized deductions on Form 1040 Schedule A. However, you cannot deduct federal income taxes.
Highway Use Tax
You can deduct the federal use tax on highway motor vehicles that you pay on a truck or tractor used in your farm business. Highway motor vehicles with a taxable gross weight of 55,000 pounds or more are taxable.
A highway motor vehicle includes any vehicle designed to carry a load over public highways. It does not matter if the vehicle is designed to transport only a specific type of load, such as people or unique cargos, or if the vehicle includes permanently-mounted machinery to perform an off-highway task not related to highway transportation.
Examples of such highway motor vehicles include trucks, truck tractors, and buses. Typically vans, pickup trucks, and panel tracks are not subject to the highway use tax because they have a taxable gross weight of less than 55,000 pounds.
You can deduct as an adjustment to income on Form 1040 half of your self-employment tax used in figuring your adjusted gross income.
Where can I get answers to other questions about my taxes?
A tax attorney can provide answers to your questions about your taxes. There are even tax attorneys who specialize in taxes related to farming.
You can speak with a tax attorney by calling the phone number at the top of this web site or completing the form below. Your first consultation with a tax attorney is completely free of charge. All discussions with a tax attorney are protected by attorney-client privilege.
If you have questions about your taxes, there is someone who can help you. Get in touch with a tax attorney today.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.