The Internal Revenue Code contains laws that govern reporting of federal income tax. The Code includes a section of laws on farm business expenses.
This section of the Code not only specifies farming expenses that may be deducted and that must be capitalized, but also expenses that are nondeductible. The focus of this article is on nondeductible expenses for those with a farming business.
In general, you cannot deduct personal expenses from their federal income tax, even if those expenses pertain to that person’s farm. There are certain other expenses that are likewise nondeductible.
Personal, Living, and Family Expenses
You cannot deduct as a business expense any personal, living, or family expenses. Personal, living, and family expenses include:
- Rent and insurance expenses on your personal residence for you and your family
- Expenses related to life insurance premiums for you and your family
- Costs associated with maintaining cars, trucks, or other transportation for personal use
- Allowances given to minor children
- Fees paid to attorneys for personal legal matters
- Personal household expenses
- Costs related to raising produce or livestock for the personal consumption of you and your family
Other Nondeductible Expenses
You generally cannot deduct the following items:
Costs of raising unharvested crops. You cannot deduct the cost of raising unharvested crops sold along with land that was owned for more than one year if you sell both the land and the unharvested crops to the same person at the same time. The costs of raising the unharvested crops are added to the basis of the land for determining the gain or loss on the sale of the land and unharvested crops.
Costs of unharvested crops purchased with land. You cannot deduct the cost of unharvested crops at the time of purchase. The cost of purchased land is capitalized and must include any costs associated with unharvested crops. However, you can deduct the cost in determining the gain or loss in the tax year when you sell the crops.
Costs of gifts. You cannot deduct the costs of agricultural gifts made with products developed for sale as a part of your farming business.
Estate and gift taxes. You cannot deduct estate and gift taxes.
Fees for club dues and memberships. You cannot deduct fees related to membership in clubs and other organizations. This includes clubs entered into for business or personal purposes. Examples of clubs include airline clubs, athletic clubs, country clubs, hotel clubs, and sporting clubs.
The following organizations are not considered to be clubs and their fees are tax deductible, unless one of the main activities of the club is conducting entertainment activities for its members.
- Boards of trade
- Business leagues
- Chambers of commerce
- Public service organizations
- Professional associations
- Real estate boards
- Trade associations
Fines and penalties. You cannot deduct fines and penalties.
Loss from sale or exchange between related persons. You cannot deduct losses related to the sale or exchange of property between you and your spouse, sibling, ancestor or direct descendant.
Loss of livestock. You cannot deduct the cost of lost livestock that die if you previously deducted the cost of raising the livestock as an expense.
Lost plants, produce, and crops. You cannot deduct losses related to plants, produce, and crops raised for sale. However, there may be exceptions for plants with a preproductive period of more than two years.
Repayment of loans. You cannot deduct costs or payments associated with repayment of a loan. However, if you use the proceeds from the loan to run the farming business, you can deduct the interest paid on the loan.
Who can provide additional help concerning nondeductible farming expenses?
By speaking with a tax attorney, you can get answers to your questions about nondeductible farming expenses, as well as any other tax questions. Tax attorneys are professionals trained to know the law and to use it to help their clients. Their goal is to legally minimize the mount you spend on income taxes.
By completing the web site below or calling the phone number above, you can speak with a tax attorney. The first discussion with a tax attorney is completely free of charge, so 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.