Tax Guide for Farmers – Deductible Expenses, Part 8

There are sections of the Internal Revenue Code dedicated specifically to income and expenses of farming businesses. A portion of these sections addresses farming expenses related to business use of your home, which is the subject of this article.

This article is the seventh in a series on deductible business expenses associated with a farming business. The previous articles on deductible expenses covered Prepaid Farm Supplies, Prepaid Livestock Feed, Hired Labor, Interest, Taxes, Insurance, and Rent and Leasing.

Business Use of Your Home

You can deduct expenses related to the business use of your home if you use at least some part of your home exclusively and regularly for one or more of the following:

  • The principal place of business for any business in which you engage
  • The place to meet clients, customers, or patients as a normal part of your business
  • There is a separate structure not attached to your home that you use for your business

You can consider your home office as your principle place of business and deduct expenses associated with it if you meet both of the following requirements:

  • You use it exclusively and regularly for the administrative or management activities of your trade or business
  • You have no other fixed or permanent location where you conduct a substantial amount of administrative or management activities of your trade or business

If you use only part of your home for your business, you must divide the expenses of operating your home between personal and business use.

There are two common methods of determining the amount you can deduct for business use:

  • Take the actual expenses of running your home and multiple that amount by the fraction of your home’s total square footage you use for your business. For example, if your home in 2,500 square feet and you have a home office that is 250 square feet, the fraction of your home used for business purposes is 10% (i.e., 250 / 2,500).
  • Take the number of square feet of your home used for your business and multiply it by $5.

You may use the method that is most favorable to your tax situation. The area of your home used in either calculation cannot exceed 300 square feet.

Deduction Limits

If your gross income from farming is equal to or exceeds your total farm expenses, you can deduct all of your farm expenses. If your gross income from farming is less than your total farm expenses, your deduction for certain expenses related to the use of your home in your farming business is limited.

Your deduction for home expenses that are normally nondeductible (including depreciation, insurance, and utilities) cannot be more than your gross income from farming minus the following expenses:

  • The business portion of expenses you could deduct if you did not use your home for business purposes (such as casualty and theft loss, mortgage interest, and real estate taxes)
  • Farm expenses other than expenses related to use of your home

You can carry deductions over the deductible limit for the current year to the following tax year.

Telephone Expenses

You cannot deduct the costs associated with basic local telephone service for the first telephone line run into your home, even if you have a home office. You can deduct the costs associated with long distance calls on that first telephone line, as well as the costs associated with a second phone line.

Cell phone charges for calls related to your business are deductible. If your cell phone is part of a plan that is also used by other members of the family, you must allocated and deduct only the portion applicable to business use.

Where can I get further help with my farming business income taxes?

A tax attorney is the best resource to help you with your income tax preparation. For those with a farming business, there are tax attorneys who are uniquely qualified to answer your tax questions.

If you call the telephone number at the top of this article or complete the form below, someone will get in touch with you to have you speak with a tax attorney. Remember the initial consultation with an attorney is free of charge, and only a tax attorney can offer you the benefit of attorney-client privilege. Therefore, you have every reason to get in touch with a tax attorney today.

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by Mark Johnston

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.