Tax time is a busy time of year for business owners, and farmers and ranchers are no exception. Filing your taxes can be challenging, especially if you are new to running a farming operation, participating in disaster programs for first time or trying to forecast your farm’s tax bill. 

Understanding Farm Tax Credits

Some income tax credits have special rules for farmers, while other credits are available only to farmers and ranchers. This guide can help farmers and ranchers optimize these tools to reduce their tax liability.

1. Fuel Tax Credit

Designed to offset the tax that the U.S. government charges on fuels such as gasoline and diesel in specific circumstances, the Fuel Tax Credit program lets some businesses reduce their taxable income dollar for dollar based on specific types of fuel costs. This credit is generally not available to individual taxpayers, as it is limited to specific uses including off-highway business usage for agriculture and farming.

2. State Tax Credits

Many states offer specific agricultural tax credits for farming and agricultural operations, which are aimed at incentivizing the transfer of farm property and assets to new or beginning farmers. While these benefits vary from state to state, in places like Colorado, personal property used in production agriculture or horticulture, valued up to $100,000, may be exempted from personal property taxes. Talk to your tax professional about what options are available in your state. 

3. Solar Energy Credits

There are two tax credits available for businesses that purchase solar energy systems

  • The investment tax credit (ITC) is a tax credit that reduces the federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year.
  • The production tax credit (PTC) is a per kilowatt-hour tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. It reduces the federal income tax liability and is adjusted annually for inflation. 

Generally, you cannot claim both credits for the same property, although you may be able to claim different credits for co-located systems, like solar and storage, depending on what further guidance is issued by the IRS. 

4. Research and Development (R&D) Tax Credits

The IRS offers a Research and Development (R&D) tax credit that offsets expenses associated with innovation. Your farm or ranch may qualify for the R&D tax credit if you make farm technology or operational updates like using new or experimental soil or fertilizer, developing new pesticides to protect crops, planting cover crops, or developing new or improved harvest techniques.

5. Earned Income Tax Credit

The Earned Income Tax Credit (EITC), sometimes called EIC, is a tax credit for workers with low to moderate income. Eligibility for the tax credit is based on various factors including family size, filing status and income — the EITC Assistant tool can help you determine if you’re eligible.

Prepare for the Unexpected

You can take every possible step to increase your farming profit margins, but it’s still crucial to protect your assets and your livelihood. A local Farm Bureau agent can discuss your needs and find the coverage that can help your operation withstand the growing costs of running a farm, from workers’ compensation to farm and ranch insurance.

Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.