Just like tending to your crops, preparing your taxes every year is part of the agriculture business. Citrus & Vegetable Magazine has put together a resource of information that every grower should know, with specific points of interest for the 2007 tax season.
Bob Richardson, finance director for the Florida Farm Bureau, Gainesville, says the single most important part of tax preparation is keeping your records up to date.
"Even with so much done online, if a service representative comes in to audit you, you need all your receipts and paperwork available," Richardson says.
The Internal Revenue Service says that in addition to tax records, your farming business should also keep records measuring farm performance. The IRS Web site recommends a publication by the Farm Financial Standards Council, Menomonee Falls, Wis., titled "Financial Guidelines for Agricultural Producers." The document offers methods of financial reporting and analysis for your record keeping. To order a copy from Countryside Marketing Inc., call (262) 253-6902 or write to the Farm Financial Standards Council, N78 W14573 Appleton Ave. #287, Menomonee Falls, WI 53051.
Richardson recommends growers read the IRS's "Farmer's Tax Guide" (publication 225) for tax information targeted specifically to farmers. He says to make sure you know and take advantage of all the tax provisions concerning growers. The document is available online, or copies are available from the IRS or at your local post office.
Obviously, when it comes to your business, it's best to consult with tax preparers who know agriculture and the latest ways to save your company money.
Rick Bucy, president and chief executive officer of Tropical Sun Citrus, Dade City, says he chose Beckert Price & Rouse in Winter Haven because they specialized in helping citrus companies.
"You can go to an accountant, but if they don't know about agriculture, you can get burned," Bucy says. "There are things at the federal level that are deductible that might not be state deductible." Ag-specific tax preparers know this, he says.
Richardson says the best way to find a recommended ag tax preparer is to ask around your community. Ask other growers, local farm bureaus and state organizations such as the Florida Fruit & Vegetable Association, Maitland, and Florida Citrus Mutual, Lakeland.
With the current labor and immigration concerns, keeping detailed payroll records is more important than ever, Richardson says. Documenting all workers includes using W-2, 940 and 941 tax forms. Richardson says tax time is a good time to check to make sure your workers' records are in order.
Depreciation schedules need to be kept up to date for tax purposes. Farm property such as machinery, equipment or a structure with a useful life more than one year can be deducted over multiple years as it depreciates in value.
"We keep a spreadsheet of all our expenses, including depreciation schedules with equipment depreciating out over 10 years," Bucy says.
Annual gains and losses need to be taken into consideration during preparation. Gains and losses include sales, exchanges, foreclosures, repossessions, cancelled debts and hedging transactions.
"There are averaging provisions, allowing companies to average profits and losses year to year, specifically for agriculture," Richardson says.
Tax news to know
- Effective July 1, 2006, a new Florida law says that electricity used directly and exclusively for the production or processing of agricultural products on a farm is exempt from state sales tax. The exemption requires that qualified applicants separately meter electricity used in production from electricity used for other purposes. Producers can contact the Florida Department of Revenue for forms and other information on the exemption. For more information, visit www.myflorida.com/dor.
- Effective Sept. 30, 2006, there will be a tax on the sale or use of any liquid fuel other than gas oil or fuel oil, according to the IRS Web site. Effective after that date, two new credits will be available: the alternative fuel credit and the alternative fuel mixture credit. See IRS publication 510, "Excise Taxes for 2006," for a list of fuels and when the credits will be available.
- Farmers can deduct certain expenses for soil or water conservation or for the prevention of erosion of land used in farming. The deduction cannot be more than 25 percent of your gross income from farming. See the chapter on soil and water conservation expenses in the IRS's "Farmer's Tax Guide" for additional information.
You may electronically file your tax return using the IRS e-file option. Make your tax deposits in a timely manner to avoid monetary fines. If you have tax questions, visit www.irs.gov or call (800) 829-1040. For more information, you can read the IRS's "Farmer's Tax Guide" online at www.irs.gov/publications/p225/index.html.