This tax season is an unusual one for farmers.
“Farmers didn’t necessarily have a great crop to harvest, but they harvested a huge amount of income last year. It was one of the biggest years, inflation-adjusted, since going back to the 1970s,” said Roger McEowen, who runs the Center for Agricultural Law and Taxation at Iowa State University.
But there’s also a rather large complication. Much of that farm income in 2012 came in the form of crop insurance — and there are special rules with crop insurance, as there are for most everything else covered by farm taxes. McEowen, who trains lawyers and accountants all over the country in how to prepare farm tax returns, said his manual runs 1,000 pages.
“Farm tax, in many instances, is totally different from taxation with respect to nonfarmers,” he said.
For example, farmers can average their income out over four years to reduce their tax burden; they typically don’t pay quarterly estimated taxes; and they can defer those crop insurance proceeds.
Farmers, it turns out, also have to wait on Congress. With Congress only finalizing fiscal decisions at the start of January, the IRS pushed the farm tax deadline out to April 15, just like for most other Americans. Farmers usually have to file and pay by March 1.
“This has been a very difficult tax season,” McEowen said. “It’s the worst one I’ve ever seen and that’s because of the lateness of the legislation and the lateness of forms and so many uncertain things so late in the year.”
Mark Kenney, a fifth-generation farmer in Story County, Iowa, said in late March that his taxes were ready to be filed — all 110 pages.
“So it does get complex,” said Kenney, whose farming operation includes a partnership, a corporation and an LLC, each of which has certain tax implications.
The later tax deadline meant he didn’t have to write a check as early as usual. But other than that, he said the impact’s minimal because he still had to make most tax-related decisions — such as when to buy this season’s fertilizer or other chemical inputs — before Dec. 31.
Kenney, who has a master’s degree in agricultural economics, said he loves spreadsheets and doesn’t shy away from numbers. He knows not every farmer embraces the finances the way he does. But he said they’re part of the job.
“If you’re involved in agriculture today, to any scale, you need some tools, some fiscal tools in your toolbox, just like you’d have wrenches and pliers and that sort of thing,” he said.
But even with his financial expertise, Kenney works with a lawyer, an accountant and a financial planner.
McEowen, the tax expert, said increasingly farmers recognize the value of such a team.
“There’s more of an understanding that they need to have a professional by their side or a team of professionals,” he said.
Even for small farming operations, taxes can be quite complicated, though farmers not turning a profit or who don’t earn at least two-thirds of their income from farming always have until April 15 to file.
Matt Russell works off-farm at the Drake University Agricultural Law Center in Des Moines and operates Coyote Run Farm with his husband. He said they’re still putting all their proceeds back into the small meat, eggs and produce operation they launched eight years ago.
“There’s an incentive in the tax code to do that and there’s an incentive to the farm,” Russell said. “And Congress has done this intentionally because that’s a very effective multiplier — it’s a very effective way to stimulate the economy.”
The local equipment shop and grain elevator, even neighbor kids he hires, benefit from the money that stays on his farm, Russell said. Still, he anticipates that someday Coyote Run Farm will bring in enough cash that after all the possible deductions, they’ll have to pay taxes. He’s okay with that.
“My dad has always told me from when I was little, if you have to pay taxes then things have been going pretty well,” Russell said.