Project Description

The Challenges

A local row crop farmer hired the same local tax preparer for years. The problem was that this tax preparer didn’t specialize in agricultural tax and didn’t realize all the tax benefits that are available for farmers. Consequently, the farmer’s deductions for depreciations and domestic production activities were not as beneficial as they could have been. Additionally, records from previous years had not been well maintained, leaving the farmer open to potential IRS or state audit.

Our client had purchased numerous pieces of expensive farming equipment, which would qualify for depreciation deductions. His previous tax preparer, however, had not added these assets to the depreciation schedule, so the farmer was missing out on valuable deductions.

The Solution

The farmer needed to work with someone who specialized in agricultural tax services to make sure everything was reported correctly so he could reap any tax benefits available. He had heard about AgriSolutions’ historical presence in the community and our specialty in farm tax services, so he reached out in 2017 for help, bringing us his both his business and personal returns.

The Result

Our tax specialists were able to not only correct but recreate his depreciation schedule (whichwas difficult) to ensure he received all of the deductions available to him. His tax benefits included

  • Domestic production activities deduction, which goes above and beyond what is spent throughout the year. Net operating losses go back five years for farmers (versus two years for other businesses). It takes a trained ag pro to recognize eligibility and claim this deduction for a client.
  • Farm income averaging—Using the average income of the last three years can help get a lower tax rate on the current year’s return.
  • Segregation of rental income from operating income allows the farmer to avoid paying the 15% self-employment tax on rental income.
  • By employing his children, he was able to provide them tax-free income.
  • Depreciation deduction for farming equipment

Our team also made sure to record everything—including carry over balances, which include deductions we can use in the future—thoroughly and accurately so the client has what he needs for future tax returns. We saved everything on our secure web portal, which is something not all tax preparers have readily available for their clients.

The AgriSolutions tax team can now optimize his deductions each year moving forward, and our client will have clean, secure records to support his deductions in the event of an audit.