Farming & Agriculture Accounting Services. Farming and agricultural accounting services are available in British Colombia. Do you own or operate a farming business? If you claim income from farming activity on your income tax return, the Canada Revenue Agency (CRA) determines that you are a farmer for tax reasons. Call Bomcas BC Accountants Today.
What Types of Expenses Are Deductible?
Farm tax accountants are able to assist agribusiness owners with a variety of tax-related questions, including what types of expenses are deductible for the current tax year. Many of these questions can be complex, but a farm tax accountant is familiar with the intricacies of this type of business.
Common deductible expenses in the farming industry
Many expenses associated with the farming business are deductible under the business section of the tax code, including the cost of insurance and the premiums paid for insurance. You can also deduct rent on your home as a cost of doing business, as long as you make an adjustment for your personal use.
A farmer can deduct the cost of materials and supplies for his operation in the year they are purchased. He may also deduct most maintenance costs, such as roof repairs and painting fences. However, he must capitalize expenses that extend the life of a building or adapt it to a different use.
Expenses that are prepaid for can be deductible for the farming business, including livestock feed. As a general rule, if an amount exceeds $5,000, the taxpayer can deduct two-thirds of the cost. If the amount exceeds this amount, the excess expense is deductible in a later year.
In addition to production expenses, a farmer can deduct expenses related to marketing, storage, and transportation. Many expenses are variable in nature and include the purchase of feed and weaned animals. In addition, they include the cost of electricity, fuel, and labor. Miscellaneous costs related to the running of a farm can also be deducted.
The farming industry is an unpredictable industry. One year you may have a bumper crop and make a tidy profit, while the next, you could be hit by drought and disease. In such cases, the amount of deductible expenses associated with running a farm may exceed other income, resulting in a net operating loss.
Expenses that can be prepaid can be deducted as expenses for the current tax year
Expenses that can be prepaid are assets that represent goods and services you expect to consume within a year. In the current tax year, you can deduct these prepaid expenses as expenses because you can claim the 12-MONTH RULE.
One of the most common prepaid expenses is insurance. Companies generally pay $12,000 in advance for a 12-month insurance policy. When they make the payment, the company records a current asset of $12,000 which represents the amount that was prepaid. For each month that the policy is in effect, the company recognizes a $1,000 expense and draws down the prepaid asset by the same amount.
While you can’t deduct prepaid expenses from a previous year, you can deduct them as expenses for the current tax year if you use the cash-basis accounting method. However, if you aren’t using the 12-month rule, you should check with the IRS to make sure that you can use it for the current tax year.
BlackLine’s prepaid expense management solutions automate all of the steps necessary to account for these expenses. They also eliminate the need for manual tracking systems or spreadsheets. It automates the creation and approval of journal entries for prepaid items and integrates with BlackLine Account Reconciliations.
Conservation easements are a tax advantage for agribusinesses
Conservation easements are an excellent way to protect open spaces and farmland, as well as to receive federal tax benefits. Conservation easements are also beneficial for estate planning. Farm owners can use them to protect farmland in the event that they pass away.
While conservation easements are a great tax benefit, there are downsides to this type of land use. For instance, the land trust must physically inspect the land at least once a year, which can be an inconvenience to some property owners. Furthermore, most land trusts don’t have the resources to visit multiple properties every year.
Another benefit of conservation easements is the fact that they can qualify for a charitable tax deduction. Qualifying farmers and ranchers can deduct as much as 100% of their income. The value of these easements can vary significantly, but the best ones are those that cover large tracts of open space under development pressure. Landowners may also save on property taxes by placing conservation easements on lands that are prone to development pressure.
Landowners with higher incomes and property values may qualify for a tax deduction on the value of their land after the easement is in place. This deduction can be used to offset a portion of income tax in the form of a paper deduction for up to fifteen years.
Using the cash method
For most farmers, using the cash method of accounting is the most convenient way to track income and expenses. This method does not require any inventory adjustments, and it allows farmers to participate in tax planning throughout the entire year. However, some farms cannot use the cash method because they have certain tax shelters, such as farm corporations or partnerships.
Cash accounting is an ideal method for small businesses, but it may not be right for every farm. If the cash method is not appropriate for the farmer’s business, then the farm owner may have to make some changes in the accounting methods. For example, he can amend the entity agreement to make the business eligible for the cash method. He can also take advantage of TCJA small business exceptions.
The cash method can also be used for C corporations with average annual cash receipts over $5 million. C corporations with more than one C corporation are also required to use the cash method. Charitable trusts and partnerships with unrelated business taxable income must use the accrual method. For taxpayers that are not in business for three years, they must calculate the average of gross receipts in the previous years. In addition, businesses that have short years must annualize gross receipts in order to determine the three-year average.
TCJA amended the regulations to permit more taxpayers to use the cash method of accounting. Under Sec. 448, a taxpayer who doesn’t qualify for a tax shelter can use the cash method for farm tax accounting purposes.
Using the accrual method
In some cases, farmers must use the accrual method of accounting in order to claim deductions for business expenses. For example, a farmer who sells grain in December 2009 and receives payment in January 2010 is required to include the sale proceeds on his 2009 tax return. This is because he must deduct the costs of producing the grain during that year. In contrast, a farmer who uses the cash method must deduct the costs of producing the grain only in the year in which the payment is made.
Using the accrual method will help you recognize all income and expenses in a more accurate way. This method records income and expenses as they occur, and matches them with expenses. As such, it is a good choice for businesses that produce goods or have inventories. The reason for this is that this method gives a more accurate view of a business’s financial health.
The accrual method requires more complicated calculations, but it can give a clearer picture of your business’ performance. Whether you’re reporting your income in cash or using the accrual method, it is important to choose a method that is right for you. This can help you be a better farmer by giving you better insight into your business.
While most farmers use the cash method of accounting, those who operate multiple businesses may want to consider using the accrual method. This method is a better choice for farming, particularly if you are using inventory. Certain types of farm corporation or partnership can’t use the cash method of accounting, and certain types of tax shelters require the accrual method.
Using the crop method
There are several ways to defer payments to reduce farm taxes. Federal disaster payments, insurance, and prepaid feed are examples of deductible items. Farm supplies, such as seed, fertilizer, and animal feed, can be deducted in the year they are purchased, provided they are not a tax avoidance scheme. Similar expenses may also be capitalized and recovered at varying rates.
Farms may use either the accrual or cash accounting methods. With the accrual method, income is recognized when it is earned and expenses when they are paid. For example, if a farmer sells corn in December 2009 but does not receive payment until January 2010, then the income is recognized in the 2015 taxes. Using the cash method, however, means the farmer does not include the sale proceeds in 2009, but does deduct expenses in the year they are paid.
Most agricultural farmers use the cash method. This method allows them to deduct expenses as they are paid, although there are some exceptions. The cash method has been around for decades, but it has recently been extended to other taxpayers. It is available to farms with average revenues of under $26 million.
While most farmers use the cash method, certain farming corporations and partnerships are required to use the accrual method for farm accounting. However, certain tax shelters use the cash method.
