If you raise crops or livestock for profit, and the money you make is more than just a side income, then IRS considers your farm to be a business. In this article, we’ll explore the various taxes farmers need to consider. By understanding these tax requirements, farmers can stay compliant with government regulations while optimizing their financial strategies.

Business Income Tax

One of the primary taxes that farmers must pay is the business income tax. Farm income is reported on the personal income tax return, and farmers must track their sales of livestock, produce, grains, and other products.

Employment Taxes

If farmers hire workers for their farming operations, they are responsible for paying employment taxes. These taxes include federal income tax withholdings, Social Security tax, Medicare tax, and possibly federal unemployment tax. Farmers must withhold and pay these taxes on behalf of their employees, along with their share of FICA taxes.

Sales Tax

In most states, a state sales tax applies to various transactions, including farming. While some farming income may be exempt from sales tax, farmers must know the specific rules and exemptions that apply to their state.

Property Tax

Business farm property is subject to property tax, including real property such as land and buildings and personal property used for farming operations. Farmers must account for property tax when planning their farm expenses and should consult their local tax authorities for specific rates and assessments.

Use Taxes

Use taxes are applicable when sales tax does not apply. This tax is levied on goods and taxable services purchased for use, storage, or consumption in the state. Farmers should be aware of these taxes, especially if they purchase equipment or supplies from out-of-state sellers who did not collect sales tax.

Gift Taxes

Farmers should also be aware of gift taxes if they transfer property to someone else while receiving nothing or less than its total value in return. While certain exemptions apply, farmers should consult the IRS guidelines and determine if they need to file a Gift Tax return.

Self-Employment Taxes

Since farmers are considered self-employed, they are responsible for paying self-employment taxes. This includes both the employer and employee shares of the tax. Farmers can deduct farm expenses to reduce their tax liability, which is especially beneficial during periods of low or no income.

Need Help with Your Farm Tax Obligations?

Farmers, as business owners, have tax obligations that they must fulfill. To stay compliant, farmers must navigate various tax types, from business income tax to employment taxes, sales tax, property tax, and more. By specializing in tax preparation and planning, our tax professionals at Genske, Mulder & Company, LLP ensure that your tax strategies are optimized to minimize liabilities and maximize savings on your farm. Contact us today to learn more.