Farmer tax deductions: Schedule F expenses, Section 179, prepaid supplies and farm record rules

How farm taxes work

Aldro is the cheapest way to get your business taxes done: $399 flat, with bookkeeping at $20 a month. The flat price covers every federal and state business return the farm needs for the year, and the owner's personal return when it's needed for the business income.

You are in the business of farming if you cultivate, operate or manage a farm for profit, as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. Farm income and expenses go on Schedule F, and line B asks for a code for your principal agricultural activity.

A farm is presumed to be run for profit if it made a profit in at least 3 of the last 5 tax years, including the current year. For horse breeding, training, showing or racing, it's 2 of the last 7.

• IRS: Publication 225, Farmer's Tax Guide

What farmers can deduct

The ordinary and necessary costs of operating a farm for profit are deductible. Ordinary means what most farmers do. Necessary means what is useful and helpful in farming. Mixed personal and business expenses are split, and only the business part goes on Schedule F.

Business meals are 50% deductible. The temporary 100% deduction for restaurant meals expired, and the 50% rule returned on January 1, 2023.

You can deduct reasonable wages paid to your child for farmwork if there is a true employer-employee relationship. You can also elect to deduct up to $5,000 of start-up costs and $5,000 of organizational costs, reduced once total costs pass $50,000, and up to $10,000 of reforestation costs per qualified timber property ($5,000 if married filing separately), with the rest amortized over 84 months.

• IRS: Publication 225, Farmer's Tax Guide

Rules that change when you can deduct

Publication 225 sets several limits on timing and amount that catch farmers out.

• Prepaid farm supplies: a cash-method farmer's deduction in the year of payment may be limited to 50% of other deductible farm expenses for the year.
• Livestock bought for resale: under the cash method you ordinarily deduct the cost only in the year of sale.
• Raised livestock that die: no loss deduction for their value if you already deducted the cost of raising them.
• Soil and water conservation: deductible only if consistent with a plan approved by the Natural Resources Conservation Service, and limited to 25% of gross income from farming for the year.
• Excess business losses: for 2025, total business deductions over business income and gains plus $313,000 ($626,000 joint) are limited.

• IRS: Publication 225, Farmer's Tax Guide

Equipment, depreciation and farm vehicles

For 2025, you can elect to deduct up to $2,500,000 of most Section 179 property, reduced once Section 179 property placed in service exceeds $4,000,000.

The 100% special depreciation allowance is restored for qualified property acquired and placed in service after January 19, 2025, and for specified plants planted or grafted after that date. Property acquired after September 27, 2017 and placed in service in 2025 before January 20 gets 40%.

You can claim 75% business use of a car or light truck without allocation records if you used it during most of the normal business day directly in farming. The 2025 standard mileage rate is 70 cents per mile, and for 2026 it is 72.5 cents.

• IRS: Publication 225, Farmer's Tax Guide
• IRS: 2026 business standard mileage rate

Farm income rules

Cash-method farmers can't hold checks or postpone taking property to shift income. Income is reported when received or made available without restriction.

You can elect to postpone eligible crop insurance proceeds to the year after the damage if you meet the conditions, including normally selling more than half the crop the following year.

Sales of livestock held for draft, breeding, sport or dairy don't go on Schedule F. They go on Form 4797. A landlord who gets crop shares without materially participating reports them on Form 4835.

Farm income averaging on Schedule J lets you figure tax on some or all farm income using rates from the 3 prior years. A new section 1062 lets a seller of qualified farmland to a qualified farmer elect to pay the tax on the gain in four equal annual installments, for tax years beginning after July 4, 2025.

• IRS: Publication 225, Farmer's Tax Guide

The farmer estimated tax rule

If at least two-thirds of your gross income for 2025 or 2026 is from farming, the ordinary first three estimated tax dates don't apply. You can pay your 2026 estimated tax by January 15, 2027, or file your 2026 Form 1040 by March 1, 2027 and pay all the tax then with no estimated payment.

• IRS: Farming and fishing income FAQ

Farm bookkeeping and records

Set up records with an accounting method that clearly shows income for the year, and keep a complete, separate set of records for each business. Changing an accounting method generally needs IRS approval on Form 3115. For 2025, farm corporations and partnerships with average gross receipts of $31 million or less for the prior 3 years, that aren't tax shelters, can use the cash method.

Keep records at least 3 years from when the return was due or filed, or 2 years from when the tax was paid, whichever is later. Employment tax records are kept at least 4 years.

In Canada, farming income is reported on Form T2042, Statement of Farming Activities, and the CRA's carry-forward period for farm losses is 20 years.

Aldro's bookkeeping at $20 a month covers unlimited bank and card accounts, monthly reconciliation and statements. Payroll processing and sales-tax filing aren't included.

• IRS: Publication 225, Farmer's Tax Guide
• CRA: T2042 Statement of Farming Activities
• CRA: T4002, Chapter 3