We had a very exciting (yes, it actually was exciting!) second WNC CRAFT Farmer Round Table, called “Let’s Talk About Taxes!” And we did.
What are Farmer Round Tables? They are open, farmer to farmer discussions geared toward a specific advanced farming topic. This ain’t no lecture series! We do have a designated facilitator but it’s a time for everyone to share ideas and experiences on a deeper more advanced level than we can get into at the CRAFT farm tours. All CRAFT Farmer Members are invited to commiserate and plan for the coming season. Become a member today to participate in next years’ sessions!
Thanks so much to Wallace Souther of Franklin Tax Services for coming. He’s both a farmer and a tax guy, which makes a wonderful combination for coaching us through this heady topic. He charges about $400/quarter to do your quarterly payroll reports (which, you could write off as a business expense!) Business or Farm Business Income Tax Returns start off at about $600 or $650 for a corporate return.
Below are some notes from the round table to get you jazzed for tax season.
Tax documents you need to know about:
- We mostly talked about the Schedule F, which is the tax form you file as a small farmer.
- Business schedule (C) is similar, just different wording for Schedule F (specific categories like chemicals, etc.)
- IRS Publication 225 – Farmer’s Tax Guide.
- IRS Publication 334 – Tax guide for small business. This one is good to look into. For farms and business it’s a lot of the same things.
- Form 4562 — Shows your assets and depreciation. Section 179 comes in here.
New things farmers should know about on the Schedule F for 2018:
- Depreciation laws have changed; they’re encouraging folks to depreciate things faster.
- Section 179 allows a taxpayer to appreciate fully (in the first year of service) the ENTIRE cost of an asset.
- Most farms don’t want to delay any income or expenses — that’s the big catch for whether accrual or cash makes sense.
- Roads, fences, gates should be 179 or slow deduction. You want to expense something like gravel in one year — can be filed under 179 to be able to be deducted in one year.
- Leasehold improvements can be filed under 179 (and therefore depreciated all at once).
- Bonus depreciation — an additional 50-75% on top of regular depreciation value.
- You can actually go into the negative with depreciation factors, unlike following years.
- Inventory is NO LONGER REQUIRED for small farms (now minimum is put at $25 million for requiring an inventory). Though, inventory is of course good to do even if not required especially if you’re doing value added.
- 20% deduction for “pass through income”, ie; LLC, sole proprietorship, etc. is new for this year. It’s a good chunk.
- There is no adjusted gross income on the 1040; goes straight to taxable income.
- Standard deduction has doubled.
- Make sure your tax program gets updated with new code for 2019 as these changes are significant.
- You can write off planned profit through an IRA — limited to $6,400/year.
Things you can write off as business expenses that you may not know about:
- Any money that goes into a Health Savings Account (HSA) or an Individual Retirement Account (IRA).
- Self Help Credit Union does HSAs for free, also State Employees Credit Union.
- You can pay into your employees HSAs or IRAs and write that off as a business expense.
- Supposed to keep track of food for employees as employee expenses.
- Would want to count in your payroll taxes. Would be considered a “non-cash addition to their payroll” as direct business expenses.
- You can write off “meals for employees” under “other”.
- Show on Line 12 or 14 of W2 as a listed item, or on their pay stubs (also clothing, uniforms, health insurance, retirement plans, etc.)
- OR include on line 15 as an employee benefits IF you don’t want to take the value out of their benefits.
- Ben Lovejoy of Far Flung Farm has to do a personal property tax for the county (for his unlicensed vehicles, implements, tractors, etc.) He can deduct these taxes on the federal taxes. BEWARE THOUGH. If you file this after years of being in business they may ask you for back taxes.
- Ben also wrote off building expenses for half of their house because that half id designated for their AIRBNB — he wrote off for the expenses for that half of the house. There is a physical clean delineation in his design, which is a helpful hint for people building new structures for agritourism or other business purposes.
- You can finance the building with the home loan but it would be claimed on your taxes.
- You’re allowed to deduct $1,500 for a home office. $3 sq ft for up to 500 sq. ft.
- You can write off tools, any renovations, etc. Schedule E is for rentals.
- Deductions of charitable donations. Donation of food goods at farmers markets, for example, is a write off! You should be sure to get receipts.
- Wallace would put it in line 32 “other” under “charitable contributions” on Schedule F. Considered an expense. Can also be a deferred expense.
Handy tips to not get behind on taxes:
- Suggestion to estimate yearly income taxes (which, according to William of Bluebird Farm, seems like about 20% of net), put that in savings biweekly.
- 3-5 years you’re supposed to show a profit as business, different than a ‘hobby’. If you showed losses too many years in a row you can trigger an audit, but farms have a lot more leway.
- Wallace recommends Intuit/Quickbooks.
Ways to file different types of income:
- Nicole DelCogliano of Green Toe Ground Farm had to claim money sent to her on a tax document 227. What’s weird is that this was money that went through their farm to another organization. She can deduct this year as deferred deduction for conservation expenses — grant money goes in line 8 on schedule F.
- Unreimbursed travel employee expenses? Could probably run those numbers through a Schedule C.
- Other income (ie; teaching for OGS): Form 1040 comes in on Schedule 1. On schedule f, it would be classified as other income, line 8. Schedule C and Schedule F often come in as a negative number.
Things to be wary of:
- One customer of Wallace’s got audited for being delinquent on sales tax – NC Department Of Revenue is more hardcore than the feds sometimes.
Author: Sera Deva
Sera Deva has a B.S. in Microbiology & Agroecology from The Evergreen State College. She is the former Director of Programs & Systems Design at OGS, is the President of the Southern Sustainable Agriculture Working Group (SSAWG) Board of Directors, and is the Administrative Director for The Firefly Gathering. When she’s not geeking out over genetics, systems theory or soil hydrology, she spends her time growing and eating food in the South Toe Valley in Burnsville, NC.