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Tax time has farmers talking 'red flags' and lawn mowers

Agriculture.com Staff 02/06/2016 @ 1:20am

Tax time has the "electronic coffee shop" stirring with questions about federal income tax filings. Recent discussions in the Agriculture Online Farm Business forum deal with issues related to deductions for health insurance, ATVs and lawn mowers, for example.

Experts remind farmers this time of year that it's important to seek professional advice, given the complexity of agricultural tax law.

"There are a large number of laws that Congress has passed that try to protect farmers from some of the tax changes that occur from year to year," George Patrick, a Purdue University agricultural economist, writes. "There are almost 50 provisions that deal specifically with agriculture."

But farmers find that advice from other farmers is useful, too. Expenses for equipment like lawn mowers and ATVs certainly should be deducted, if care is given to the "ordinary and necessary" rule, Eugene Moore, a farmer and certified public accountant, told Agriculture Online Farm Business Talk visitors.

In one discussion, a farmer had expressed concern about deducting the percentage of the cost of a lawn mower based on its farm use, believing the deduction might be a "red flag" to the IRS.

In a follow-up posting, Moore took another view: "'Red flags' are usually the results of the presentations, not the substance of an item," he says. "If the mower was used for business, it should be deducted."

A deduction for an ATV should raise no red flags either, if handled properly. In another Farm Business Talk discussion, an Illinois farmer said he bought an ATV that will be used primarily for farm work, but worries about taking a deduction. "Does the IRS challenge this purchase as a depreciable farm business asset? Maybe it expects a farmer to depreciate only a percentage according to farm use verses play."

A Kentucky farmer chimed in, "I bought a new one two years ago. I financed it with Honda credit to help my credit record.... I have used the down payment, monthly payments, and interest as a deduction without question."

Moore agrees. "Basically, anything is deductible, as long as it is used in the business, and its use can be proved as to extent," he says. "If personal property is used in business, it must be depreciated to the extent of its use in the business. If an ATV is used in a business for only 50% of its total use, then that 50% should be subjected to depreciation."

In a follow-up interview, Moore told Agriculture Online that some of the most questionable issues for farmers are tied to personal expenses being deducted "under the umbrella of employee-type expenses, or expenses that have a shared duty," those that must be measured.

Examples of a shared duty expense, he says, are those for home offices or telephone bills. Tax preparers should be sure to document these expenses carefully.

Telephone expenses have another angle this year, Moore says. "One new item that is going to cause a lot of hassle this year, for no more actual amount of tax dollars than will be allowed, is the rebate on the telephone excise tax. IRS is already putting out the word that a significant percentage of the returns are not including proper amounts for the refundable tax credits. It would appear that the preparers do not understand the procedures," he says.

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