Farm Tax Basics

Is a farm taxed differently from other businesses?

Farming is a business in the eyes of tax authorities, but several rules are written with farms in mind. For example, there are special ways farmers may account for income and certain expenses that other businesses do not use. The details change, and they depend on how your farm is organized.

Because rules shift from year to year, treat anything you read in a general article, including this one, as a starting point. The IRS Farmer's Tax Guide and a licensed professional are the places for current answers.

Many new farmers are surprised to learn that tax planning is a year-round task. Decisions about when to sell, when to buy and how to record things can all change what shows up on a return.

Do you have a farm or a hobby?

Tax authorities distinguish between a business run to make a profit and an activity done mainly for enjoyment. The distinction affects how income and losses are treated. There is no single test. Factors that are generally considered include how you run the activity, whether you keep good records, whether you depend on the income and whether you change methods to improve results.

Do not guess which side you fall on. This is exactly the question to bring to a tax professional, ideally before you file, not after a letter arrives.

• Keep separate accounts and complete records.
• Write a simple business plan, even a short one.
• Track time and effort as well as money.

What income counts?

Farm income generally includes more than the checks you receive for crops and animals. It may include government program payments, sales of items you raised, rent from land, custom work for others, and other receipts. How and when each is reported can differ.

Keep a complete record of everything that comes in, including cash and barter. Do not leave a sale out because it was small. Records of all receipts protect you if questions come up later.

Keep a note of anything you received in a form other than money, such as feed, services or goods traded with another farm. Ask your preparer whether it needs to be reported.

What expenses can reduce taxable income?

In general, ordinary and necessary costs of running the farm may be deducted, such as seed, feed, fuel, repairs, insurance, interest and hired labor. Costs for items that last for years, like equipment and buildings, are usually treated differently from everyday supplies.

Personal and household spending is not a farm expense. Mixed-use items, such as a truck used for both farm and family, need careful records of business use. Ask your preparer how to document that.

Hold on to receipts even for small purchases. A year of small, unrecorded costs can add up to a meaningful amount that you cannot claim without proof.

Which taxes might a farmer face?

Beyond income tax, farm owners may deal with self-employment tax, payroll taxes if they have employees, property tax on land and buildings, and sales tax questions on what they sell or buy. Each is set by a different level of government, and some states offer special treatment for agricultural land or purchases.

Your county assessor, state department of revenue and the IRS are the official bodies. Rules vary by state and county, so check locally rather than assuming a neighbor's situation matches yours.

How do you prepare for tax time?

Get organized before the filing season. Close out the year's books, reconcile bank accounts, gather receipts, loan statements, sales records and any forms you received from buyers or programs. Make a list of questions and big purchases or sales for your preparer.

Planning during the year, not just at filing, can help you avoid surprises. A short meeting with your preparer in the fall or at midyear to review income and expected tax can show you what to expect.

If this is your first farm tax year, tell your preparer that. They can walk you through what is different from filing as an employee.

Where can you get free or low-cost help?

The IRS publishes a guide written for farmers and provides general information on its website. Some extension offices run farm tax workshops, and some communities have volunteer tax programs for people who qualify. Availability varies, so ask your county extension office what is offered near you.

Be cautious with anyone who promises large refunds or guaranteed deductions. A trustworthy preparer explains the reasons for each position and signs the return they prepare.

Be wary of advice from social media and online forums. People share what worked for them without knowing your facts, and farm rules change often.

Last reviewed: November 12, 2026. Written by the Rural Farm Life Editorial Team. See our editorial policy.