Running a small farm provides you with the opportunity to contribute to the food supply and can also get you some tax breaks. The Internal Revenue Service (IRS) allows small farms to take several deductions on expenses. Some states also provide property tax breaks for farms.
Expenses
The IRS allows small farms to deduct many of the items on which they spend money. For example, farms can deduct the costs of hired help to run the farm. They can also deduct any supplies needed to run the farm. Any prepaid livestock feed or prepaid farm supplies can also be deducted from taxable income for the year. Interest paid for business expenses and any money spent on fertilizers or lime can also be deducted.
Depreciation
Besides the expenses incurred on an annual basis, a small farm also gets to deduct depreciation. The average farm uses a large amount of equipment for business operations. The IRS allows farm owners to deduct depreciation for the equipment that is used. The amount of the depreciation is based on the useful life of the equipment, which differs for each piece of equipment. Depending on how much property a farm has, depreciation could provide a large deduction.
Property Taxes
Depending on where you live, you may also be able to take advantage of property tax breaks for having a small farm. Many states offer agricultural designations for property that has livestock or crops on it. When you qualify as a farm, it decreases the amount of property taxes you have to pay for the year. Some people who do not even run farms get some livestock, purely for the property tax benefit that comes with it.
Considerations
When you run a small farm, it is important to keep track of all of the expenses and income for the year. Keep a detailed account of all of your financial matters. Getting some accounting software or a ledger is essential. Claiming many deductions could lead to an audit by the IRS at some point. You need to have proof of the expenses so that the deductions are not disallowed by the IRS.
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