Get Your Farm Taxes Ready
We all want to avoid doing our farm taxes, but spending time getting your taxes in line can save you money in the end, so it is worth the effort.
Step 1. Get Your Recordkeeping in Line
Following our step-by-step guide, get your accounting and record keeping system in places long before the year end rush happens. If your records are in place it will be easy for you to put together your Six Part Folder Organization as an effective and fast way to organize information for tax preparation, loan application, credit application for a supply vendor, or your own analysis.
Step 2. Know the Law
In preparing your taxes, it is good to know what the IRS expects out of farmers. These are the top ten things to know about farm income and deductions. If you want to have a better understanding of taxes read the IRS’ Publication 225, the Farmer’s Tax Guide that illustrates everything you need to know about farm taxes.
Step 3. Understand What Forms You’ll Need to Fill Out
Forms of Ownership – Tax Returns Required*
|
Form of Ownership |
Decision-makers: |
Tax Form for Farm Income |
|---|---|---|
|
Sole Proprietor |
A Single owner |
Form 1040, Schedules F, SE |
|
Partnership |
Two or more owners with partnership agreement |
Form 1065 |
|
Limited Liability Company LLC |
One or more owners, managing owner in charge |
Form 1065 multiple owners |
|
S Corporation |
Officers, Manager, Shareholders |
Form 1120 S, form 1065 |
|
C Corporation |
Board of Directors elected by Shareholders. Board of Directors elects/appoints and directs Officers and Management – CEO, CFO, CTO etc. |
Form 1120 |
|
Revocable Living Trust |
Trustee |
Varies |
*This content was prepared by Bill Longbrake for the Alaska South-central C.R.A.F.T Preparing Your Farm Taxes class from November 2016
Step 4: Find yourself a high quality CPA
Once your record keeping is in order and you know what forms you need to fill out, approach a CPA to prepare your taxes. It may seem like a big expense, but a qualified CPA can save you thousands of dollars in taxes and make sure your taxes are completed in a professional manner. If you are worried your CPA doesn’t have the necessary skills, ask around to other farmers to see who they use for filing their taxes.