What farmers need to know for tax season

Ned Birkey

EAST LANSING, MI. — Publication 225, the farmer’s tax guide is one of the most important tax documents a farmer/ rancher can have to review, even if it is not the best of reading! A person is in the business of farming if they cultivate, operate or manage a farm for profit, either as owner or tenant. A farm can include livestock, dairy, poultry, fish, fruit, greenhouse, sod, vegetables, field crops, flowers and truck farms. It also includes plantations, ranches, ranges and orchards, groves and vineyards.

Publication 225 explains, in somewhat technical language, how the federal tax laws apply to farming. It references many other federal tax documents that may be needed to complete the 2022 tax income tax forms. Reviewing this publication is one helpful step prior to a farmer’s appointment with their tax professional so you are prepared and informed.

Of primary interest is what is new for 2022, which is a whopping eight pages long! Standard business mileage rate from January 1, 2022 to June 30, 2022 is 58.5 cents per mile and then rises to 62.5 cents per mile for July 1, 2022 to December 31, 2022. Increased section 179 direct expense allowance for items placed into service in 2022 is $1,080,000. Chapter 7 of Publication 225 has additional information, rules and limits. Special depreciation allowance is phased down to 80% for certain qualified property acquired after September 27, 2017 and placed in service after December 31, 2022 and before January 1, 2024. One example is plants bearing fruits or nuts and planted or grafted after December 31, 2022.

Maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax is $147,000 for 2022, up from $142,800 for 2021. There is no maximum limit on earnings subject to the Medicare part (2.9%) or, if applicable, the additional Medicare tax (0.9%). The COVID-19 related credits for qualified sick and family leave wages is something new as is the COVID-19 related employee retention credit situation. There are two paragraphs in Publication 225 on page five chocked full of rules, forms and where-with-alls to consider. The coronavirus food assistance program (CFAP) provides direct payments to farmers of eligible agricultural commodities adversely affected by the coronavirus (COVID-19) and is explained in chapter 3.

Form W-4 for 2022 available to employees to check their income tax withholding situation. Form 1099-MISC is used if you pay at least $600 in rents, services and other miscellaneous payments in your farming business to an individual who is not your employee. Payments made to corporations for medical and health care payments, including veterinarians, must generally be reported also on form 1099.

Records are an important part of the business of farming and someone who likes to do this part of the business should be tasked or hired to do it. The pesticide classes scheduled for December 14 and 16 will in part discuss record-keeping for a completely different part of the farming business. Neglecting either one could land a person in court, with a fine or jail!

Things that may get flagged by IRS computers include supplies, miscellaneous or large changes to income or expenses from previous years, without documentation. There are several other IRS publications to address specific topics, such as business expenses, how to depreciate property, travel, gift and car expenses, etc. All requirements that apply to hard copy record and books also applies to electronic storage systems that maintain tax books and records. There is one entire page of guidelines regarding electronic records that clearly shows your income and expenses for your tax year (normally the calendar year). Records can apply to checks, electronic funds transfer and credit cards and should include credit card sales slips and invoices, to show that you incurred the cost.

Records should be kept for at least three years from when your tax return was due or filed or within two years of the date the tax was paid, whichever is later. However, there are many kinds of records that must be kept for a longer period of time, including employment, purchase of land or other assets, pesticides, insurance records, creditor records, etc.

An electronic version of IRS Publication 225 can be googled simply at IRS Pub 225. Hard copies will be distributed to area agri-businesses later this month.

A winter meeting update that Ohio State will be offering their 2023 corn-soybean day on January 20, 2023 at Founder’s Hall at Sauder Village, Archbold, Ohio. The cost is $40 if postmarked by January 6, 2023 or $50 at the door, space permitting. Registration online is at: Questions can be directed to the Fulton County Extension office at 419-337-9210. The MSU “Agronomy Day” program will be held on February 7, 2023 at the Old Mill Museum in Dundee. Registration details will be announced shortly.